UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

Annual Report Pursuant to Section 13 or 15(d) of the Securities  Exchange Act of
1934.

                    For the Fiscal Year Ended August 31, 2007

                         Commission File Number 0-50092

                       EDGEWATER FOODS INTERNATIONAL, INC.
                       -----------------------------------
                 (Name of Small Business Issuer in Its Charter)

           Nevada                                                  20-3113571
--------------------------------------------------------------------------------
(State or Other Jurisdiction of                             (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)
--------------------------------------------------------------------------------

5552 West Island Highway, Qualicum Beach, British Columbia, Canada     V9K 2C8
(Address of Principal Executive Offices)                              (Zip Code)

                                 (250) 757-9811
                (Issuer's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:   None
Securities registered pursuant to Section 12(g) of the Act:   Common Stock

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act.

                YES              X   NO
           ----                -----


Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirement for the past 90 days.

             X  YES                  NO
           -----               -----


Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ X ]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                 YES             X  NO
           ----                ----


<PAGE>


The issuer's revenues for its most recent fiscal year were:  $657,065.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of  the  registrant  as of  November  23,  2007  was  $9,616,917
(computed by  multiplying  the closing  sales price for our common stock on such
date by the  number of  shares  of  common  stock  held by  persons  other  than
officers,  directors  or by record  holders  of 10% or more of the  registrant's
outstanding common stock. This  characterization of officers,  directors and 10%
or more beneficial  owners as affiliates is for purposes of computation only and
is not an admission  for any  purposes  that such people are  affiliates  of the
registrant).

The number of shares of our common  stock  outstanding  on November 23, 2007 was
23,737,700.


















                                       ii
<PAGE>





                          TABLE OF CONTENTS

                                     PART I
Item 1     Description of Business....................................  Page 5
Item 2     Description of Property....................................  Page 15
Item 3     Legal Proceedings..........................................  Page 16
Item 4     Submission of Matter to a Vote of Security Holders.........  Page 17

                                     PART II
Item 5     Market for Common Equity, Related Stockholder Matters
            and Small Business Issuer Purchases of Equity Securities..  Page 18
Item 6     Management's Discussion and Analysis or Plan of Operation..  Page 26
Item 7     Financial Statements.......................................  Page F-1
Item 8     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure..................................  Page 41
Item 8A    Controls and Procedures....................................  Page 41

                                    PART III
Item 9     Directors and Executive Officers of the Registrant.........  Page 43
Item 10    Executive Compensation.....................................  Page 49
Item 11    Security Ownership of Certain Beneficial Owners, and
            Management and Related Stockholder Matters................  Page 54
Item 12    Certain Relationships and Related Transactions.............  Page 58
Item 13    Exhibit List...............................................  Page 59
Item 14    Principal Accountants Fees and Services....................  Page 61

           Signatures.................................................  Page 62








                                        3
<PAGE>



                                     PART I.

                         CAUTIONARY STATEMENT REGARDING
                           FORWARD-LOOKING INFORMATION

From time to time, we may make written  statements  that are  "forward-looking,"
including  statements  contained  in this  report  and  other  filings  with the
Securities  and  Exchange  Commission,  reports  to our  stockholders  and  news
releases.  All statements  that express  expectations,  estimates,  forecasts or
projections are forward-looking  statements.  In addition, other written or oral
statements which constitute  forward-looking  statements may be made by us or on
our  behalf.  Words  such  as  "expects,"   "anticipates,"  "intends,"  "plans,"
"believes,"  "seeks,"  "estimates,"  "projects,"  "forecasts,"  "may," "should,"
variations of such words and similar  expressions  are intended to identify such
forward-looking  statements.  These  statements  are not  guarantees  of  future
performance and involve risks, uncertainties and assumptions which are difficult
to predict.  Therefore,  actual outcomes and results may differ  materially from
what  is  expressed  or  forecasted  in or  suggested  by  such  forward-looking
statements.  We undertake no obligation to update  publicly any  forward-looking
statements, whether as a result of new information,  future events or otherwise.
Important factors on which such statements are based are assumptions  concerning
uncertainties,  including but not limited to  uncertainties  associated with the
following:

         (a) volatility or decline of our stock price;

         (b) potential fluctuation in quarterly results;

         (c) our failure to earn revenues or profits;

         (d) inadequate capital and barriers to raising the additional capital
             or to obtaining the financing needed to implement its business
             plans;

         (e) inadequate capital to continue business;

         (f) changes in demand for our products and services;

         (g) rapid and significant changes in markets;

         (h) litigation with or legal claims and allegations by outside parties;
             or

         (i) insufficient revenues to cover operating costs.

There  is no  assurance  that  we  will  be  profitable,  we may  not be able to
successfully develop,  manage or market our products and services, we may not be
able to attract or retain  qualified  executives and technology  personnel,  our
products and services may become obsolete,  government regulation may hinder our
business, additional dilution in outstanding stock ownership may be incurred due
to the issuance of more shares,  warrants and stock options,  or the exercise of
warrants and stock options, and other risks inherent in the our businesses.


                                        4
<PAGE>


We undertake no obligation to publicly revise these  forward-looking  statements
to reflect  events or  circumstances  that arise after the date hereof.  Readers
should  carefully  review the factors  described in other documents we file from
time  to time  with  the  Securities  and  Exchange  Commission,  including  the
Quarterly  Reports  on Form  10-QSB  and  Annual  Report on Form  10-KSB and any
Current  Reports  on  Form  8-K  filed  by us.  All  forward-looking  statements
attributable  to us are expressly  qualified in their entirety by the cautionary
statement above.


             ITEM 1.       DESCRIPTION OF BUSINESS

OVERVIEW
We were  incorporated  under the laws of the  State of Nevada on June 12,  2000,
with the name Heritage Management Corporation. In August 2005, we entered into a
share exchange  agreement with Edgewater Foods  International,  Inc., the parent
company of Island  Scallops  Ltd. an  aquaculture  company  located in Vancouver
Island,  British Columbia.  As a result of the Share Exchange,  Edgewater became
our wholly owned  subsidiary and Edgewater's  shareholders  became the owners of
the majority of our voting  stock.  Pursuant to the terms of the Share  Exchange
Agreement, Edgewater's officers and directors were appointed as our officers and
directors.  Additionally,  we changed our name from Heritage Management, Inc. to
Edgewater Foods International, Inc.

Our wholly  owned  subsidiary,  Edgewater  Foods  International  Inc.,  a Nevada
Corporation,  is the parent company of Island Scallops Ltd., a Vancouver  Island
aquaculture  company.  Island  Scallops was  established in 1989 and for over 17
years has successfully  operated a scallop farming and marine hatchery business.
Island  Scallops is dedicated to the farming,  processing  and marketing of high
quality, high value marine species:  scallops and sablefish.  Scallop farming is
relatively new to North America and Island Scallops is the only producer of both
live-farmed  Pacific  scallops and live  sablefish (or  blackcod).  Given Island
Scallops' unique hatchery technology and extensive research and development,  we
believe  that there is  currently no  significant  competition  for these marine
species.  Island  Scallops is  committed  to rapidly  expanding  production  and
profits  while  continuing to finance the  aggressive  growth of the company and
maintaining a healthy respect for the marine environment.

Edgewater  acquired  Island  Scallops  in June  2005  through  a tax free  share
exchange.  Island  Scallops was  established in 1989 to  commercialize  Canadian
government research on scallop aquaculture. Island Scallops' hatchery operations
have  diversified to produce other species of shellfish such as mussels,  clams,
geoducks  and oysters.  Island  Scallops  has also  investigated  the culture of
halibut,  spot  prawn,  sea urchin and  abalone.  Island  Scallops  is the first
hatchery to successfully produce sablefish juveniles for commercial grow-out.

Currently,  Island Scallops' primary product is farmed pacific scallops for sale
in the west coast of North America.  Island  Scallops  offers a variety of other
products  and  services  to  the  industry  including   aquaculture   equipment,
consulting,  research and  development,  and custom  processing  and  marketing.
Internationally,  Island  Scallops  has  collaborated  with  both  Japanese  and
Moroccan fisheries interests.



                                        5
<PAGE>


On August 30, 2006, we filed a Form 8-A to register our common stock pursuant to
Section 12(g) of the Act and we therefore ceased being a voluntary filer.

KEY CORPORATE OBJECTIVES

Our key business  development  objectives  over the next 36 months are to expand
scallop and sablefish  production using both existing and new  infrastructure at
our facilities in Qualicum Beach,  Canada, which we anticipate will enable us to
reach annual sales of as much as  approximately  US$40.0 million and earnings of
approximately  US$15.0  million  by the end of our 2010  fiscal  year on scallop
sales alone. This significant  expansion will be accomplished as a result of the
following four factors:


     o    We expect to begin harvesting the 2007 year-class  scallops during the
          spring of 2009,  however,  we could begin  harvesting  portions of the
          class  sooner if  mortality  rates (at  various  points of the  growth
          cycle) are  significantly  lower than our  current  projections  or if
          growth rates are substantially  higher. We anticipate that at least 20
          million scallops could reach maturity and thus be harvested.

     o    We expect to produce more than 200 million scallop seeds in 2008, with
          a  projected  2008  scallop  class of at least 40 million  scallops at
          various sizes.

     o    We plan to  capitalize  on the high  demand for  sablefish  in foreign
          markets by entering into the blackcod market in the next 2 to 3 years.

     o    We plan to expand current  distribution by establishing  new strategic
          relationships  with 10-15  American  fisheries  importers  in Seattle,
          Portland,  San  Francisco,  San Jose,  and Los Angeles and overseas in
          Hong Kong in 2008 and the  introduction  of  frozen on the  half-shell
          product targeting the Eastern United States and Canada .


MARKETING AND DISTRIBUTION

Our  marketing  and  distribution  strategy  for Island  Scallops  is focused on
developing and maintaining  long-term  relationships  with distribution  channel
members.  Island Scallops also strives to differentiate  its products to achieve
consistent  supply and quality.  Island  Scallops  believes  the scallop  market
effectively  functions as a commodity market and therefore,  relationships  with
distributors are important. To develop these relationships,  Island Scallops has
identified  key purchasing  criteria for the  distributors:  price,  quality and
consistent  farmed supply. In the short term, Island Scallops intends to adopt a
pricing policy equal to the market wholesale  prices.  In other words, we do not
intend to set any  promotional or premium prices for either the whole or shucked
product,  but instead intend to sell our products at the market rate. This would
mean Island  Scallops'  products would compete on other factors,  such as supply
and consistent quality.

Over the long term,  for the  reasons  noted  below,  Island  Scallops  wants to
differentiate  its products so that it can command premium prices.  Freshness is



                                        6
<PAGE>


an important  factor for scallops since whole scallops only have a shelf life of
approximately 7 days while shucked  scallops remain fresh for up to 20 days. Due
to this short  shelf  life,  distributors  try to offer the  freshest  products.
Island Scallops believes it is in a favorable  position to supply fresh products
to United  States  brokers/distributors,  especially  those  located on the west
coast   where   demand   for   the   product   is   strong.   Currently,   these
brokers/distributors  are  supplied  for the most  part with  east  coast  North
American  scallops,  which have several  transportation-related  delivery delays
that decrease freshness.

Supply is another key factor  where Island  Scallops  has a distinct  advantage.
Based on our planned  increase  in scallop  production,  we believe  that Island
Scallops  will  have a  large  quantity  of  scallops  for  sale.  Therefore,  a
distributor  would  not  have to  deal  with  numerous  suppliers,  which  costs
additional time and money.  This makes Island Scallops an attractive  source for
scallops,  since  we  believe  that we will be able to  satisfy  the  demand  of
distributors, which will save them time and money.

Island Scallops has also developed a unique live holding system for use with our
distribution  model.  This system allows Island Scallops to deliver live product
directly to seafood suppliers and individual restaurants.

Traditionally, as described above, we have sold live scallops within the Pacific
Northwest  market.  We recently  hired outside  seafood  sales and  distribution
consultants  who have began to introduce  new product  lines of fresh meat and a
new unique frozen half-shell  product that is generating  significant  interest.
Part of the new  marketing  strategy  includes  working  with  various  high-end
restaurants  and chefs to  develop  new menu  items  based on our  scallops.  We
believe that this will help create product and encourage additional  wholesalers
to carry our scallops.  As part of our overall  strategy and in conjunction with
the introduction of our frozen half-shell product,  we are currently  evaluating
strategic relationships with three major US-based distributors.

CURRENT PRODUCTS

Island Scallops currently focuses exclusively on aquaculture products and is not
involved  in wild  fisheries.  All  seafood  products  are  produced  in private
hatcheries and grown on ocean farm sites. Currently,  the Pacific Scallop is the
only product that Island Scallops produces,  grows,  processes and markets, with
the exception of limited  quantities  of sablefish  grown as part of our planned
expansion  into this market.  In the past however,  Island  Scallops  produced a
variety of other shellfish species  including the Pacific oyster,  European flat
oyster,  Manila clam, eastern blue mussel,  Mediterranean  mussel, rock scallop,
geoduck  clam and sea urchin,  which we sold to third party  shellfish  farmers.
Additionally, our hatchery has produced and is capable of producing a variety of
shellfish  seed  (for  grow-out  and sale by our  companies)  including  mussel,
oysters and geoduck as well as scallop seed.

Island Scallops has been a leader in marine hatchery  technology for the past 17
years.  Island  Scallops has developed  proprietary  hatchery  techniques  for a
number of marine  species,  most notably the  hybridizing of the Pacific Scallop
and becoming the first  company to produce  commercial  quantities  of sablefish
juveniles.  Both of these breakthroughs have required many years of research and
considerable  investment.  In the case of sablefish,  which is a cold-water fish


                                       7
<PAGE>

that spawns at depths of 800 - 2400 ft, a variety of techniques were required to
successfully  mature,  spawn,  incubate and rear the larvae. In addition,  there
were technical difficulties associated with egg and yolk sac incubation (as well
as larvae rearing and weaning) that were resolved using  proprietary  technology
developed  at  Island  Scallops.   We  intend  to  begin   significant   further
commercialization  of sablefish in the next two to three years,  provided we are
able to finance the  expansion of this product which we estimate will require at
least $5.0 million of capital.

SCALLOP OVERVIEW

Island Scallops' main product is the "Pacific Scallop", which is a hybrid of the
imported  Japanese scallop and the local weathervane  scallop.  Between 1993 and
1999,  Island Scallops  developed this new scallop using Japanese  scallops that
were  imported  under  quarantine in the early  1990's.  This unique  scallop is
marketed  as the  Pacific  scallop  and is the  largest  scallop  in the  world,
reaching  sizes of 15 cm and 500 grams.  The  scallop  species  farmed by Island
Scallops has a proven  record of being  disease  resistant,  with a 95% survival
rate during the grow-out phase. We have the necessary farming  infrastructure to
produce up to 15 million  scallops  annually  and,  with an  additional  capital
investment  of  approximately  $1.0  million,  which  we hope to fund  from  the
exercise of warrants or improving cash flows, up to 30 million scallops annually
by the fall of 2009. If we are not able to fund this  expansion via the exercise
of warrants or cash flow, we have to seek additional financings.  Given the high
worldwide  demand for  scallops,  Island  Scallops  is poised to rapidly  expand
production and significantly increase revenues.

The Pacific Scallop is sold live in four sizes:  medium,  large, extra large and
jumbo. Pricing ranges from a low of US$3.95 per pound to $4.20 per pound for the
larger sized  scallops.  Previously,  due to the large demand and high value for
live  scallops,  our focus was on the sale of live scallops in 2006. We recently
hired  outside  seafood  sale and  distribution  consultants  who have  begun to
introduce  new product  lines of fresh meat and a new unique  frozen  half-shell
product that is generating significant interest.

The basis for our anticipated  scallop farming production  increase stems from a
combination of our tenure  expansion,  our recent  financing,  improved grow-out
techniques and our transition to a combination  of  "lantern-style"  netting and
ear-hanging  methods.  Scallops  culture  utilizes  two  styles  of small  cages
referred  to as "pearl  nets and  lantern  nets."  Pearl nets are shaped  like a
pyramid  with a 35 by 35 cm square base and grow small  scallops  from 2-3 mm to
10mm. The 10-mm  scallops are grown in cylindrical  nets called lantern nets and
are 60 cm in diameter and 1.2 meters deep containing 12 layers. Our Hindoo Creek
and Deep Bay tenures have been approved for expansion and once  expansion of our
Denman tenure is approved,  which we believe will occur by our next fiscal year,
we will be able to increase  capacity to  approximately  15,000,000  animals per
annum. Thereafter, we intend to change our management plan to include off bottom
culture at our Bowser  tenure in late 2007 or 2008,  which would  supply us with
the capacity to produce an additional 20 million animals at harvest.

As the only  hatchery/producer  of cultured  scallops on the west coast of North
America,  Island  Scallops  has the  ability  to  supply  fresh  scallops  (of a
predictable  quality and quantity)  throughout the year.  Although the supply of


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<PAGE>

scallops has  fluctuated in the past,  consumer  demand has always  absorbed the
available  supply. A primary factor for increased  consumption is the increasing
health  consciousness  among  consumers.  Scallops are low in saturated fats and
cholesterol  and high in  protein.  All parts of the  scallop  body are  edible;
however,  different parts tend to be consumed in different regions of the world.
In North America, the adductor muscle is traditionally the only part eaten, with
the rest of the body discarded. In Europe,  Australia and Tasmania, the adductor
muscle is usually marketed and eaten with the gonad attached. Japan utilizes the
whole  animal,  where most of the  product is cooked in the shell prior to sale.
Marketed scallops generally take the following product forms:

     o    Whole-live (shelf life of seven days);
     o    Whole dried;
     o    Eviscerated whole;
     o    Shucked fresh (shelf life of about 15-20 days);
     o    Shucked frozen (shelf life of about a year);
     o    Frozen on the half-shell (shelf life of about a year); and
     o    Value added forms (smoked, breaded, canned).

The  shucked  product  form is the  most  significant  form for  North  American
markets.   A   whole-live   product  form  is  the  most   desirable   from  the
aquaculturist's  point of view,  as  processing  costs are minimal.  Previously,
Island  Scallops has developed a market for whole live  scallops,  which exceeds
5,000 lbs. per week into Vancouver. We are currently in the process of expanding
our live  scallop  distribution  network  into Hong Kong and the western  United
States  to up to 15,000  lbs.  per week in the near  future.  We are also in the
process of introducing  fresh scallop meat into high end  restaurants in Toronto
and Montreal and frozen  half-shell  product into the eastern US and Canada.  In
2008, we expected our overall  product  mixture to consist of 40% live scallops,
30% fresh meat and 30% frozen half-shell,  and then 50% frozen  half-shell,  30%
live and 20% fresh thereafter.

Island  Scallops  currently   distributes  through  specialty  wholesalers  with
particular  expertise in selling to  restaurants  and has developed a market for
whole  live  scallops  that  exceeds  5,000  lbs.  per week into  Vancouver.  In
Vancouver  these  include  but are not  limited  to Albion  Fisheries,  Tri-Star
Seafood  Supply,  Pacific  Rim  Shellfish,   Sea  World  Fisheries  and  Teamway
Fisheries. As we expand our distribution, we will continue to focus on specialty
wholesalers with strong ties to major restaurants.

The most predominant scallop production in North America comes from the offshore
fishery  located on the  Georgia  Band on the east  coast.  Large  American  and
Canadian fishing companies  dominate the fishery.  The majority of their product
is shucked aboard ship then supplied to primarily  frozen to seafood  processors
onshore.  The processors  then  distribute  the product to various  restaurants,
retail outlets and seafood brokers.

Sablefish (Blackcod) Overview

Sablefish (Anoplopoma  fimbria),  often called blackcod although not a member of
the cod family, is an elongate fish with two dorsal fins and an anal fin similar
to and  opposite  the second  dorsal  fin.  Adults are black or  greenish  gray;
usually with slightly paler blotches or chainlike  pattern on the upper back. At
30-61 cm in size they are often greenish with faint stripes on the back.


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Sablefish inhabit shelf and slope waters in depths of greater than 1,500 meters,
from Baja  California  to the  Aleutian  Islands and the Bering Sea.  The larger
populations of sablefish are centered in northern  British Columbia and the Gulf
of Alaska. Adults favor mud bottoms and feed on benthic invertebrates, squid and
numerous fish species.  In turn, they are prey for halibut,  lingcod,  hagfishes
and marine mammals such as sea lions. In addition, killer whales have been known
to take sablefish from long line gear as it is being retrieved.

Sablefish spawn from January to March along the  continental  shelf at depths of
250 to 750 meters.  Fecundity ranges from  60,000-200,000 eggs up to one million
eggs for a 102-cm fish.  Larval  sablefish are found in surface  waters over the
shelf  and  slope  in  April  and  May.  Juveniles  are  highly  migratory  with
significant  movement  from nursery areas in northern B.C. to the Gulf of Alaska
and the Bering Sea.  Sablefish  move to deeper waters as they mature.  Growth is
rapid with sizes at maturity reaching 52-61 cm for five-year-old males and 58-71
cm for five-to-seven year old females.  Sablefish growth appears to be rapid for
the first three-to-five years and slow asymptotically thereafter. Annual natural
mortality of adults has been estimated to be about 10 percent.

Island  Scallops plans to raise  sablefish  onshore using shallow ponds or above
ground  tanks.  This  system  has been  successful  in Texas for the  culture of
catfish.  Tests have shown that  sablefish  prove to be very hardy when grown in
ponds and this has the added advantage of causing sablefish to be parasite free.
Wild  sablefish  carry a parasite  that does not allow the fish to be eaten raw.
With adequate funding,  Island Scallops has already demonstrated the feasibility
of onshore sablefish farming and plans to develop a new sablefish  facility that
could  produce at least  500,000  sablefish  as early as 2008,  with  production
planned  to  increase  by at  least  500,000  annually  by 2009 and  beyond.  We
currently plan to fund this new sablefish  facility via the exercise of existing
warrants.  Since the  exercise of the warrants  is,  however,  to a large extent
dependent upon the price of our stock in the public market,  we cannot guarantee
when any of the  warrants  will be  exercised,  if at all and, as a result,  the
proceeds from the exercise of the warrants may not be available to us. If we are
not able to fund this  expansion  via the exercise of warrants,  we need to seek
additional financings to fund this project.

Over the past  eight  years,  Island  Scallops  has also  developed  proprietary
hatchery technology for the production of sablefish  juveniles.  We believe that
sablefish will be the next species,  after salmon,  for  successful  large-scale
commercial  farming.  Sablefish,  which is a  premium-quality  whitefish  with a
delicate  texture and moderate  flavor,  is an ideal  substitute for Chilean sea
bass  (currently  over-fished  in all  oceans).  To date,  Island  Scallops  has
marketed a limited number of live sablefish into the Vancouver  market.  Initial
response was excellent  for a small  1-kilogram  live  sablefish  (~$11/kg).  To
capitalize on Island Scallops'  breakthrough  sablefish hatchery technology,  in
the next two to three  years,  we plan to  construct  a new  sablefish  hatchery
consisting of the following:

     o    An expanded  Brood  Stock  facility  with larger  capacity to hold the
          various families of selected  strains of sablefish.  This new facility
          will incorporate a new state-of-the-art water treatment system.


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<PAGE>


     o    An  improved  incubation  and larval  rearing  facility  incorporating
          proprietary improvements in tank design and seawater systems.

     o    An upgraded  zooplankton  culture facility with improved  handling and
          enrichment techniques.

     o    An expanded  and  improved  juvenile  rearing  facility  incorporating
          proprietary recirculation system designs.

As part of this  expansion,  we also intend to construct a new onshore tank farm
consisting  of  large  and  small  ponds  and  tanks  complete  with  associated
recirculation  systems.  This  onshore  facility  will be used  to  augment  the
juvenile rearing area and will house and grow juvenile fish.

At the present time, worldwide "non-farming" sablefish catches are struggling to
meet the  worldwide  demand  according to DFOWeb,  NPFMCWeb and Pacific  Fishery
Management Council Website.  Currently,  there are only two hatchery facilities:
Island Scallops Ltd. and Sablefish  Hatcheries Inc. that have produced sablefish
juveniles.  Current production is only approximately 100,000 juveniles per year.
Based  on our  analysis  of  present  market  conditions,  increasing  worldwide
hatchery  production  tenfold (to roughly 1 million 3 kilo sablefish) would fill
less than 10% of the current  world demand  shortfall.  If Island  Scallops' new
sablefish  facilities  are able to reach a  production  of 3  million  sablefish
annually,  this will only fill less than 30% of the current  overall  shortfall.
The economic  potential  for  sablefish is therefore  considerable.  Given these
market conditions and opportunities,  Island Scallops, subject to our ability to
secure  adequate  funding,  is determined to enter the market for sablefish in a
significant manner within the next two to three years.

OTHER PRODUCTS

In the past Island Scallops sold a variety of shellfish  larvae and seed to both
international and local customers. Sales included two species of mussels, manila
clams,  geoduck clams,  oysters,  abalone and sea urchins.  Island  Scallops has
established  suppliers of aquaculture  equipment in Japan and China and supplies
nets,  ropes,  floats,  and  processing  equipment  into  the  British  Columbia
industry.  Currently, Island Scallops is focused almost exclusively on expansion
of scallop  sales and  development  of its  sablefish  operation  with a goal of
further commercialization of sablefish in two to four years.

GENERAL FISHERIES MARKET OVERVIEW

The worldwide market for farmed marine species  continues to grow.  According to
personal  communications  with the National Marine Fisheries Service,  Fisheries
Statistics  Division,  Silver Spring,  MD, in British  Columbia  alone,  farming
production increased from US$44.56 million in 1988 to US$190.24 million in 1998.
Although  significant  growth occurred in salmon farming and little or no growth
occurred  in  shellfish  (oyster)  farming,  recent  problems  within the salmon
industry are causing some salmon  farming  interests to turn towards  shellfish.
Island  Scallops can only benefit from this recent trend towards  shellfish,  as
training farmers in correct husbandry would only add another revenue stream.


                                       11
<PAGE>


The majority of the world's current scallop  production comes from three species
of scallops:  the Japanese  scallop,  the sea scallop and the king scallop.  The
Chinese  scallop is also selling well, but FDA  inspections of China  facilities
found that the  conditions  and hygiene  were issues as  hatcheries  were highly
polluted. There has also been a fishery boom on the east coast of Canada and the
United States with the Digby or sea scallop.

In the United  States,  consumption  of scallops  exceeded 64 million  pounds in
2002. Various  communications between Island Scallops personnel and the National
Marine Fisheries Service,  Fisheries Statistics Division,  Silver Spring, MD and
analysis  of data from the  Fisheries  Statistics  &  Economics  Division of the
National  Marine  Fisheries  Service  (NMFS)  website  for  annual  landings  of
commercial  fisheries   (http://www.st.nmfs.noaa.gov/st1/commercial/index.html),
tell us that this  represented a per capita  consumption of 0.22 pounds,  with a
dollar value of US$342 million. After shrimp, scallops represent one of the most
popular  shellfish  products  in the  United  States.  In  general,  per  capita
consumption  of seafood in the United  States has remained  steady over the last
six  years  ranging  from 15.2 to 16.2  pounds  per  annum.  Based  upon  Robert
Saunders',  our chairman and president,  communications with the National Marine
Fisheries  Service,  Fisheries  Statistics  Division of Silver  Spring,  MD, and
personal  observations,  given consumers'  growing  preoccupation with healthier
foods and the increasing availability of seafood (due to the recent successes in
aqua  farming  and  improved  distribution   channels),  we  expect  per  capita
consumption to continue to increase.

Shifts in North American  shellfish  market trends from shucked to live in shell
products  can be seen in the oyster  markets.  Within the last 5 years,  we have
seen a  significant  trend away from  shucked  oyster  meat to live in the shell
product in the  Pacific  Northwest  due to the  demand  for fresh  high  quality
products.  We believe that once a live in the shell product is readily available
within the scallop  market,  a shift from frozen  scallop meat to fresh in shell
product will also occur.

REGULATORY ENVIRONMENT

Effect of Government Regulation

There  are  a  limited  number  of   regulations   that  restrict  the  fishing,
distributing or purchase of scallops in Canada and the United States. Therefore,
the  country of origin  makes  little  difference  for the  pricing or demand of
scallops.

A limitation to market  supply is paralytic  shellfish  poisoning  (PSP) or "red
tide". PSP is a toxin generated by plankton (scallops' food) at particular times
of the year.  The toxin is passed to the scallop when plankton is digested,  but
the toxin does not harm the  shellfish.  However,  the shellfish  containing the
toxin can be harmful to humans who consume it. Although only a limited number of
human  deaths  caused by  red-tide  poisoning  have been  reported,  the  public
announcement of red tide has a devastating  effect on most shellfish  sales. The
exception is scallop meat,  because the adductor  muscle of the scallop does not
concentrate the toxin; shucked scallops are safe to eat at any time of the year.
Nevertheless,  public perception could still influence demand over short periods
of time. To monitor for PSP, the federal Fisheries  Inspection Branch constantly
monitors samples of shellfish production and wild shellfish populations.


                                       12
<PAGE>


Tenure Expansion and Compliance with Environmental Laws

Our planned  tenure  expansions  will require  that we undergo an  environmental
screening from Transports Canada pursuant to Canadian  Environmental  Assessment
Act, which includes a review of factors such as the environmental effects of the
planned  expansions,  including the  environmental  effects of  malfunctions  or
accidents  that may occur in  connection  with the  planned  expansions  and any
cumulative  environmental  effects  that are likely to result from such  planned
expansions; the significance of such environmental effects and any comments from
the public  that are  received  in  accordance  with the CEA Act and  applicable
regulations;  and measures that are  technically and  economically  feasible and
that would mitigate any significant adverse environmental effects of the planned
expansions.

Our Deep Bay and Hindo Creek tenures have received final CEA Act approval, which
lasts for twenty years and which  allows us to expand  these 2 tenures.  We have
CEA Act approvals but are waitiong on re-zoning  approval for our Denman tenure,
along with a approvals for our Bowser bottom lease.  Please see our risk factor,
If we are unable to expand our tenures, our projected production may be delayed.

COMPETITION

Fisheries Industry in General

Island Scallops is in the farmed seafood  business.  The main  concentration  of
marine farming in British Columbia has traditionally  been in the salmon sector.
The salmon farming  business has developed into a mature  industry  dominated by
Norwegian farmers.  The rest of the British Columbia marine farming sector is in
the  shellfish  industry,  mainly in oysters and Manila clams and more  recently
mussels.  This sector is rapidly  expanding and it accounted  for  approximately
US$16  million in British  Columbia in 2002,  according to the British  Columbia
Shellfish  Growers  Association  website.  Given Island Scallops'  expertise and
significant research and development experience, we believe that there is little
or no  direct  competition  in the  production  of  farmed  scallops  or  farmed
sablefish.

Scallops

There are no significant  direct  competitors in the scallop farming business in
British Columbia. The United States will not allow farming this species in their
waters,  as this species is considered  "exotic".  Although scallop farming is a
very significant  industry in Japan and China,  only frozen shucked scallops are
currently sold into North America from these  countries.  Recent  examination by
the United States and Canadian Food Inspection authorities of the growing waters
in China resulted in reduced exporting due to high levels of pollution.

Island Scallops is the only hatchery,  outside of China,  that has  successfully
produced the  Japanese  scallop,  and the only  company  that has  successfully,
hybridized the weathervane and the Japanese scallop. Island Scallops is uniquely
positioned as the sole producer of live Pacific Scallops in North America. There
currently are no other hatcheries in North America that we are aware of that are
capable of producing  this unique  breed.  Although a large  commercial  scallop


                                       13
<PAGE>

fishery exists on the east coast of North America,  the majority of the scallops
are shucked at sea with only limited  quantities  sold live.  These scallops are
sold as "Digby" or "Sea" scallops.  A number of companies have attempted to grow
the bay scallop and the sea scallop on the east coast,  but these companies have
only achieved limited success.

The primary British Columbia participants in scallop farming are Island Scallops
joint venture farmers or independent scallop farmers, which receive their supply
of seed scallops  solely from Island  Scallops.  These  farmers are  chronically
underfinanced  and  production  from  these  growers  usually  totals  less than
1,000,000  scallops per year. Island Scallops is uniquely  positioned to rapidly
expand these farms (up to six farms) under an  exclusive  farming and  marketing
contract. Three joint venture farmers are currently farming scallops and receive
free scallop seed,  technology  and support for a 12% royalty on the harvest and
exclusive marketing of their product through Island Scallops.

Due to its large size and small  count per pound,  the sea  scallop is the prime
competitor in the United States market.  The fishery for this scallop is located
primarily on the North American east coast,  in particular  Georges Bank off New
England and the Maritime provinces.  This is a limited opportunity fishery, with
actual fishing time being dictated by sea and other environmental conditions.

Sablefish

Island Scallops is currently only one of two hatcheries to produce quantities of
juvenile  sablefish.  These  fish were sold to five  commercial  salmon  farming
facilities and the fish have been marketed successfully. Little demand for a new
species has materialized.  Although  hatcheries have been constructed in British
Columbia,  neither has successfully produced large quantities of sablefish.  The
farming of  sablefish is still in its infancy and only  limited  production  has
occurred.

This limited production is not a matter of biological barriers but rather a lack
of interest by the major producers to venture into a new marine species.  Alaska
sablefish  fishermen  have  expressed  interest  in  farming  sablefish  and the
Sablefish Association of Alaska has voted unanimously to start farming sablefish
in southern Alaska. Island Scallops has been in discussion with this association
and has been told that due to  "anti-aquaculture"  policy in Alaska,  it is very
unlikely that any farming will occur there in the near future.

Washington State contains two parties  interested  parties in sablefish farming.
The first is the  Makah  Tribe and the  second  is a private  company,  which is
trying to obtain  farming  permits  in Port  Angeles.  These  parties  have made
inquiries to Island Scallops for juvenile sablefish. However, to date, no orders
have been placed.

RESEARCH AND DEVELOPMENT

Due to changes in Canadian  Federal  Government's  Research and  Development tax
credits (SRED)  program,  which prevents any part of the research to be combined
with  commercial  production,  no Research and  Development  claims were made in
fiscal 2006 and 2007. Research did continue on the genetic selection of superior


                                       14
<PAGE>

strains of scallops,  as did developments in the culture process for both marine
algae and  developments  in  re-circulation  systems.  Island  Scallops plans to
conduct   research  and  development   under  a  separate   company  called  RKS
Laboratories Ltd., which has no commercial  production and whose primary goal is
the genetic  improvement  in breeds of the  Pacific  Scallops  and other  marine
species.  We believe  that this will allow the  continued  support from the SRED
program.

EMPLOYEES

At August 31, 2007, we had 45 full time employees.  We anticipate hiring between
10 and 15  temporary  workers  during the  upcoming  spring  and summer  growing
seasons.

None of our  employees  is  represented  by a labor  union and we  consider  our
relationships with our employees to be good.


ITEM 2.  DESCRIPTION OF PROPERTY

For the fiscal year ended August 31, 2007, our U.S. corporate office was located
at 400 Professional Drive, Suite 310,  Gaithersburg,  Maryland 20878. This space
was provided on a rent free basis by one of our shareholders.

Island  Scallops'  main  office and  hatcheries  are located on the east side of
Vancouver  Island  in the town of  Qualicum  Bay at 5552  West  Island  Highway,
Qualicum  Beach,  British  Columbia,  Canada V9K 2C8. The shellfish  hatchery is
housed in a 930 square meter building.  A 300 square meter shellfish  processing
plant is also located at this site.  Corporate  scallop farms are situated along
the east and west coasts of Vancouver  Island.  These  facilities  represent the
largest  private  marine  research  hatchery  and  the  first  fully  integrated
shellfish producer in Canada.

Island  Scallops has a total of seven farm sites  (including two joint ventures)
for  scallops.  Five of these farm sites are  located  at Island  Scallops  held
tenures  (shellfish  tenures  are  government-granted  rights  that allow use of
offshore waters to cultivate  shellfish).  Three of those five scallop farms are
located in Baynes  Sound,  25 minutes  north of the main  facility.  These farms
sites total  approximately  200 acres and can currently  accommodate more than 8
million scallops.  Approximately 30% of the farm area is currently being farmed.
As part of our expansion  plans, we are currently  adding  additional main lines
and plan to  increase  our  capacity  at these  tenures  to more than 24 million
scallops in the near future. An additional bottom tenure of 926 acres is located
10 minutes north of the main facility (at Bowser) and is capable of producing at
least 30  million  scallops  annually.  The final farm site on the west coast of
Vancouver  Island near  Tofino is capable of  producing  at least three  million
scallops,  although that site is currently  under-developed.  Baynes Sound,  the
marine waterway  situated between eastern Vancouver Island and the western shore
of  Denman  Island,  is  considered  the most  productive  and  highly  utilized
shellfish growing area in coastal British Columbia.  The area supports extensive
beach  culture  (manila  clams and  oysters) as well as  deepwater  culture that
produces oysters, scallops and some mussels.

--------------------- ------------------- ------------------- ------------------
  Common Site Name      Lands File No.           Acres               Type
--------------------- ------------------- ------------------- ------------------
       Denman               1406063              38.64             Deepwater
--------------------- ------------------- ------------------- ------------------


                                       15
<PAGE>

    Hindoo Creek            1406664             123.32             Deepwater
--------------------- ------------------- ------------------- ------------------
      Deep Bay              1406711               43               Deepwater
--------------------- ------------------- ------------------- ------------------
       Tofino               1406061               9.6              Deepwater
--------------------- ------------------- ------------------- ------------------
       Bowser               1407517               926            Bottom lease
--------------------- ------------------- ------------------- ------------------

The three  Baynes  Sound  tenures  (Denman,  Hindoo  Creek and Deep Bay) and the
Tofino tenure offer unique  features,  which will add additional  value to these
properties.  These include the split of tenures  between east and west shores of
Baynes  Sound as well as the east and west coast of Vancouver  Island,  allowing
continual   accessibility  to  shellfish   despite  managed  closures   (harvest
restrictions) due to incidental water quality or Paralytic  Shellfish  Poisoning
(PSP or red tide).  The seasonal  closures caused by short-term  bacteriological
contamination  related to rainfall and upland bacterial sources,  are limited to
the western  shore of the Baynes Sound and thus to only two of the three tenures
retained  by Island  Scallops.  The result of having  operating  tenures on both
sides of the Baynes  Sound  ensures that  product can be  continually  harvested
despite  closures  that may occur  within this  management  area.  The  expanded
tenures should easily  accommodate  our increasing  scallop  harvest in 2009 and
beyond.  At their  current size and with the  introduction  of  sufficient  main
lines, our tenures have the capacity to accommodate  approximately 13-15 million
scallops without any increase in their footprints.

Expansion of our Deep Bay and Hindo Creek has been  approved  and such  approval
does not need to be renewed for twenty years.  An amended  tenure  agreement has
been signed with the  government  of BC to expand the Denman  Island  site.  The
biggest  hurdle to  completing  the Denman  expansion  process is the  re-zoning
application, which must be approved before we can use the expanded tenure.
  At the Bowser  tenure,  we are waiting  for  approval to convert the method of
farming from bottom to off-bottom  culture in one-third of the tenure area. Once
approved, this will allow us to accommodate about 20 million scallops.

Island Scallops'  location is a distinct advantage for producing marine species.
The waters off British Columbia are pristine and unspoiled by large  populations
or major  industries.  The close  proximity to major western cities allows us to
effectively put our products into the hands of the consumer within 24 hours.

The source of our raw material comes from our own hatchery  brood stock.  In the
case of the Pacific Scallop, we have been selectively  breeding this species for
superior  growth and  survival for the past 15 years.  The breeding  program has
produced a vigorous,  rapid growing,  disease resistant scallop with exceptional
meat yield.  In the case of sablefish we have been  selecting  fast growing fish
for the past 5 years, these display a high degree of domestication. The spawning
season  has been  extended  for  both of these  species  allowing  for  juvenile
production  almost  year  round.  This  ability  to hold seed  stock and  select
superior  strains gives Island  Scallops an advantage in the  industry.  It also
allows Island  Scallops to tailor its production to varying  seasonal and market
demands.


ITEM  3. LEGAL PROCEEDINGS

In 1998 our wholly owned subsidiary,  Island Scallops, entered into an Agreement
with two  parties,  pursuant to which  Island  Scallops  was to produce and sell


                                       16
<PAGE>

geoduck seed to the two parties.  Island Scallops received advance payments from
each of the two parties in 2002 totaling  approximately  $64,140. As a result of
breaches of the purchase  agreements by the purchasers,  it is our position that
we may retain any unused portion of these advance payments.

As of August  31,  2004,  one of the two  purchasers  had  claimed  that  Island
Scallops  owed it amounts  totaling  $88,925.  Since it is our position that the
purchasers breached their agreements with Island Scallops,  we have no intention
of  seeking a  settlement  of this  matter at this time.  We are  unaware of any
formal  proceedings  that  may have  been  commenced  by  either  of  these  two
purchasers in regard to any claims that they may have.

Other  than  as set  forth  herein,  we are not a party  to any  material  legal
proceeding and to our knowledge no such proceeding is currently  contemplated or
pending.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We did not  submit  any  matters to a vote of our  security  holders  during the
fourth quarter of the fiscal year covered buy this Report.









                                       17
<PAGE>


                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
         BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

The common  stock is currently  quoted on the  over-the-counter  Bulletin  Board
under the symbol "EDWT."

The  following  table sets forth the  quarterly  high and low bid prices for the
common stock since the quarter  ended  November  30, 2005.  The prices set forth
below  represent  inter-dealer  quotations,  without retail markup,  markdown or
commission and may not be reflective of actual transactions.

                                                             HIGH        LOW
                                                             ----        ---
  Quarter ended November 30, 2005                           $1.80      $1.45
  Quarter ended February 28, 2006                           $1.64      $1.10
  Quarter ended May 31, 2006                                $1.45      $0.80
  Quarter ended August 31, 2006                             $1.70      $1.20
  Quarter ended November 30, 2006                           $1.85      $1.01
  Quarter ended February 28, 2007                           $1.70      $1.01
  Quarter ended May 31, 2007                                $1.70      $1.01
  Quarter ended August 31, 2007                             $1.65      $1.05

At August 31,  2007,  the closing bid price of the common stock was $1.10 and we
had  approximately  58 record holders of our common stock,  15 record holders of
our Series A  Preferred  Stock and 2 record  holders  of our Series B  Preferred
Stock.  This number  excludes  any  estimate  by us of the number of  beneficial
owners  of  shares  held in  street  name,  the  accuracy  of  which  cannot  be
guaranteed.

At November 23, 2007, the closing bid price of the common stock was $1.01 and we
had  approximately  57 record holders of our common stock,  15 record holders of
our Series A Preferred  Stock, 2 record holders of our Series B Preferred  Stock
and 1 record holder of our Series C Preferred  Stock.  This number  excludes any
estimate by us of the number of beneficial owners of shares held in street name,
the accuracy of which cannot be guaranteed.
Dividends

We have not paid cash  dividends on any class of common  equity since  formation
and we do not anticipate paying any dividends on our outstanding common stock in
the foreseeable future.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

2005 Equity Incentive Plan


                                       18
<PAGE>

Our 2005 Equity  Incentive  Plan is intended to further our growth and financial
success by providing  additional  incentives to our  directors,  executives  and
selected  employees and  consultants  so that such  participants  may acquire or
increase their proprietary  interest in us. The term "Corporation" shall include
any parent corporation or subsidiary corporation of Edgewater as those terms are
defined  in Section  424(e) and (f) of the  Internal  Revenue  Code of 1986,  as
amended.  Stock options  granted under the Plan may be either  "Incentive  Stock
Options",  as defined in Code section 422 and any regulations  promulgated under
that  Section,  or  "Nonstatutory  Options"  at the  discretion  of our Board of
Directors and as reflected in the  respective  written  stock option  agreements
granted  pursuant to this Equity Plan.  Stock  Appreciation  Rights,  Restricted
Stock, Restricted Stock Unit, Performance Awards, Dividend Equivalents, or Other
Stock-Based Awards may also be granted under the Equity Plan. The Board believes
that the Equity Plan will maintain the flexibility  that Edgewater needs to keep
pace with its  competitors  and effectively  recruit,  motivate,  and retain the
caliber of employees, directors and consultants essential for achievement of our
success.

Individuals  eligible to receive awards under the Equity Plan include  officers,
directors,  employees of and  consultants to Edgewater and its  affiliates.  The
number of shares  available  under the Equity Plan shall be 5,000,000  shares of
our  common  stock,  as well as the  following:  As of  January 1 of each  year,
commencing  with the year 2006 and  ending  with the year  2008,  the  aggregate
number of Shares  available  for  granting  Awards  under the Equity  Plan shall
automatically  increase  by a number of Shares  equal to the lesser of (x) 5% of
the total  number of Shares then  outstanding  or (y)  1,000,000.  The Board may
distribute  those  shares in  whatever  form of award they so choose  within the
Equity Plan's  guidelines.  There are no  restrictions  on the amount of any one
type of award that may be granted under the Equity Plan.

As of August 31, 2007, our Board of Directors had granted  2,962,000  options to
employees,  directors  and  consultants  under the Equity Plan. As of August 31,
2007,  there  are  6  Directors,   2  executive  officers,   3  consultants  and
approximately  26 employees other than executive  officers,  who are eligible to
receive awards under the Equity Plan.

The Board may delegate a Committee to administer  the Equity Plan. The Committee
shall not  consist  of fewer than two  members,  each of whom is a member of the
Board and all of whom are disinterested  persons,  as contemplated by Rule 16b-3
promulgated  under the  Securities  Exchange Act of 1934, as amended and each of
whom is an outside  director for purposes of Section 162(m) of the Code,  acting
in accordance with the provisions of Section 3.

Currently, we do not have any definitive plans for granting further awards under
the Equity Plan and no determination has been made as to the number of awards to
be granted, or the number or identity of recipients of awards.

AMENDING  THE  PLAN.  The Board  may  amend,  alter,  suspend,  discontinue,  or
terminate  the  Equity  Plan,  including,  without  limitation,  any  amendment,
alteration,  suspension,  discontinuation,  or termination that would impair the
rights of any  Participant,  or any other  holder  or  beneficiary  of any Award
theretofore granted, without the consent of any share owner, Participant,  other
holder or beneficiary of an Award, or other Person. The Board may also waive any
conditions  or rights  under,  amend any  terms  of, or amend,  alter,  suspend,
discontinue,  or terminate,  any Awards  theretofore  granted,  prospectively or
retroactively,   without  the  consent  of  any  Participant,  other  holder  or


                                       19
<PAGE>

beneficiary of an Award. Except as provided in the following sentence, the Board
is  authorized  to make  adjustments  in the terms and  conditions  of,  and the
criteria  included in, Awards in recognition of unusual or  nonrecurring  events
affecting the Company, any Affiliate, or the financial statements of the Company
or any Affiliate, or of changes in applicable laws,  regulations,  or accounting
principles,  whenever the Board determines that such adjustments are appropriate
in order to  prevent  dilution  or  enlargement  of the  benefits  or  potential
benefits to be made  available  under the Equity Plan.  In the case of any Award
that is intended to qualify as  performance-based  compensation  for purposes of
Section  162(m) of the Code,  the Board  will not have  authority  to adjust the
Award in any manner that would cause the Award to fail to meet the  requirements
of Section 162(m).

OPTIONS AND RIGHTS.  Options and Stock Appreciation  Rights may be granted under
the Equity Plan.  The exercise  price of options  granted shall be determined by
the Board or the  Committee;  provided,  however,  that such exercise  price per
Share under any Incentive  Stock Option shall not be less than 100% (110% in the
case of a "10-percent  shareholder as such term is used in Section  422(c)(5) of
the  Code)  of the  Fair  Market  Value  of a Share on the date of grant of such
Incentive  Stock  Option.  The  Board or  Committee  shall  fix the term of each
Option,  provided that no Incentive  Stock Option shall have a term greater than
10 years (5 years in the case of a "10-percent shareholder" as such term is used
in Section 422(c)(5) of the Code).

A Stock  Appreciation  Right  granted  under the Equity Plan shall confer on the
holder thereof a right to receive,  upon exercise thereof, the excess of (1) the
Fair  Market  Value of one  Share on the date of  exercise  or,  if the Board or
Committee  shall  so  determine  in the case of any such  right  other  than one
related to any  Incentive  Stock Option,  at any time during a specified  period
before or after the date of  exercise  over (2) the grant  price of the right as
specified by the Board or Committee. Subject to the terms of the Plan, the grant
price, term, methods of exercise, methods of settlement, and any other terms and
conditions of any Stock  Appreciation  Right shall be as determined by the Board
or the  Committee.  The Board and the  Committee  may impose such  conditions or
restrictions  on the  exercise  of any Stock  Appreciation  Right as it may deem
appropriate.

FEDERAL INCOME TAX CONSEQUENCES.  The current federal income tax consequences of
grants under the Equity Plan are generally  described below. This description of
tax  consequences  is not a complete  description,  and is based on the Internal
Revenue  Code as  presently  in effect,  which is subject to change,  and is not
intended  to be a complete  description  of the  federal  income tax  aspects of
options and stock awards under the Equity Plan. Accordingly, the discussion does
not deal with all  federal  income tax  consequences  that may be  relevant to a
particular  recipient,  or any  foreign,  state  or  local  tax  considerations.
Accordingly, potential recipients are urged to consult their own tax advisors as
to the specific federal,  foreign, state and local tax consequences to them as a
result of receiving an Award under the Equity Plan.

NONQUALIFIED  STOCK  OPTIONS.  A recipient will not be subject to federal income
tax upon the  grant of a  nonqualified  stock  option.  Upon the  exercise  of a
nonqualified stock option,  the recipient will recognize  ordinary  compensation
income in an amount  equal to the excess,  if any, of the then fair market value
of the shares  acquired over the exercise  price.  We will  generally be able to
take a deduction with respect to this compensation income for federal income tax
purposes.  The  recipient's  tax basis in the  shares  acquired  will  equal the


                                       20
<PAGE>

exercise price plus the amount taxable as compensation to the recipient.  Upon a
sale of the  shares  acquired  upon  exercise,  any  gain  or loss is  generally
long-term or short-term  capital gain or loss,  depending on how long the shares
are held. The required  holding  period for long-term  capital gain is presently
more than one year.  The  recipient's  holding  period for shares  acquired upon
exercise will begin on the date of exercise.

INCENTIVE  STOCK  OPTIONS.  A recipient  who receives  incentive  stock  options
generally  incurs no federal  income tax  liability at the time of grant or upon
exercise of the options.  However, the spread will be an item of tax preference,
which  may  give  rise to  alternative  minimum  tax  liability  at the  time of
exercise.  If the  recipient/optionee  does not dispose of the shares before the
date  that is two  years  from the date of grant  and one year  from the date of
exercise, the difference between the exercise price and the amount realized upon
disposition of the shares will constitute long-term capital gain or loss, as the
case may be. Assuming both holding  periods are satisfied,  no deduction will be
allowable to us for federal  income tax purposes in connection  with the option.
If,  within  two years of the date of grant or within  one year from the date of
exercise,  the holder of shares  acquired  upon  exercise of an incentive  stock
option disposes of the shares,  the  recipient/optionee  will generally  realize
ordinary  compensation  income  at the  time  of the  disposition  equal  to the
difference between the exercise price and the lesser of the fair market value of
the stock on the date of exercise or the amount realized on the disposition. The
amount  realized upon such a disposition  will generally be deductible by us for
federal income tax purposes.

STOCK AWARDS. If a recipient receives an unrestricted  stock award,  he/she will
recognize  compensation income upon the grant of the stock award. If a recipient
receives a restricted  stock award,  he/she normally will not recognize  taxable
income upon  receipt of the stock award until the stock is  transferable  by the
recipient or no longer subject to a substantial  risk of  forfeiture,  whichever
occurs earlier.  When the stock is either transferable or no longer subject to a
substantial risk of forfeiture, the recipient will recognize compensation income
in an amount  equal to the fair market value of the shares (less any amount paid
for such  shares) at that time.  A recipient  may,  however,  elect to recognize
ordinary compensation income in the year the stock award is granted in an amount
equal to the fair  market  value of the  shares  (less any  amount  paid for the
shares) at that time,  determined  without regard to the  restrictions.  We will
generally be entitled to a corresponding  deduction at the same time, and in the
same amount, as the recipient  recognizes  compensation income with respect to a
stock  award.  Any gain or loss  recognized  by the  recipient  upon  subsequent
disposition of the shares will be capital gain or loss.

TAX DEDUCTIBILITY  UNDER SECTION 162(M).  Section 162(m) of the Internal Revenue
Code disallows a public company's deductions for employee compensation exceeding
$1,000,000  per year for the chief  executive  officer  and the four  other most
highly compensated executive officers.  Section 162(m) contains an exception for
performance-based compensation that meets specific requirements. The Equity Plan
is intended to permit all options to qualify as  performance-based  compensation
at the Board of Directors or Committee's  discretion.  If an Award is to qualify
as such, it shall clearly state so in the award agreement.

WITHHOLDING.  We have the right to deduct any taxes required to be withheld with
respect to grants under the Equity Plan. We may require that the participant pay
to us the amount of any required  withholding.  The  Compensation  Committee may


                                       21
<PAGE>

<TABLE>

permit the participant to elect to have withheld from the shares issuable to him
or her with respect to an option or restricted stock the number of shares with a
value equal to the required tax withholding amount.


The following  table provides  information as of August 31, 2007 with respect to
compensation plans (including individual compensation  arrangements) under which
our securities are authorized for issuance:

------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan Category                   Number of securities to be   Weighted average exercise    Number of securities
                                issued upon exercise of      price of outstanding         remaining available for
                                outstanding options,         options, warrants and        future issuance under
                                warrants and rights          rights                       equity compensation plans
                                                                                          (excluding securities
                                                                                          reflected in column (a))

                                (a)                          (b)                          (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                                                                             <C>       <C>

Equity    Compensation   plans           2,962,000                      $1.26                     4,038,000*
approved by security holders
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity  compensation plans not              N/A                          N/A                          N/A
approved by security holders
------------------------------- ---------------------------- ---------------------------- ----------------------------
Total                                    2,962,000                      $1.26                      4,038,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>


*As of January 1 of each year, commencing with the year 2006 and ending with the
year 2008, the aggregate  number of shares  available for granting  Awards under
the Equity Plan shall automatically  increase by a number of Shares equal to the
lesser  of (x)  5% of  the  total  number  of  Shares  then  outstanding  or (y)
1,000,000.

RECENT SALES OF UNREGISTERED SECURITIES

To  accomplish  the Share  Exchange  with  Edgewater,  we issued an aggregate of
19,000,000  shares  of  common  stock  in  exchange  for all of the  issued  and
outstanding capital stock of Edgewater.  The shares were issued to 17 accredited
investors  pursuant to the exemption from registration  provided by Section 4(2)
of the Securities Act for issuances not involving any public offering.

In October  2005,  we engaged  Aurelius  Consulting  to  provide  marketing  and
investor  relations  services.  The initial  term of the  agreement is one year.
Aurelius is entitled to receive  100,000 shares of our  restricted  common stock
during the term of its agreement  (25,000 per  quarter),  in  consideration  for
their services. The shares were valued at $1.45 per share, the closing bid price
for  shares of our common  stock on the date of the  contract.  The shares  were
issued in accordance with the exemption from the registration  provisions of the
Securities  Act of 1933,  as amended,  provided by Section  4(2) of such Act for
issuances not involving any public offering.


                                       22
<PAGE>


On October 21, 2005 and November 11, 2005, our board approved issuing a total of
25,000  shares of our common  stock to The Shemano  Group,  LLC for  preparing a
research  report for us. The shares were valued at $1.50 per share,  the closing
market bid of our common  stock on the date of the  resolution.  The shares were
issued in accordance with the exemption from the registration  provisions of the
Securities  Act of 1933,  as amended,  provided by Section  4(2) of such Act for
issuances not involving any public offering.

On January 31, 2006, we issued 400,000 shares of our restricted  common stock to
World Wide Mortgage as consideration  for agreeing to extend the due date for us
to repay our CDN  $1,500,000  loan pursuant to the bridge loan  agreement  dated
November 9, 2004 and amended on April 15,  2005  between us and World Wide.  The
shares  have  piggy-back  registration  rights that  require us to register  the
shares in our next registration  statement.  The shares were valued at $1.30 per
share,  the  closing  bid price for  shares of our  common  stock on the date we
issued the shares.  The shares were issued in accordance with the exemption from
the registration provisions of the Securities Act of 1933, as amended,  provided
by Section 4(2) of such Act for issuances not involving any public offering.

Pursuant to the  financings  we closed on April 12, May 30, June 30 and July 11,
2006, we issued an aggregate of 30,905,619  shares of our preferred  stock.  The
shares were issued to 9  accredited  investors  pursuant to the  exemption  from
registration  provided by Section 4(2) of the  Securities  Act for issuances not
involving any public offering.

On June 30, 2006, we issued 22,860 shares of common stock to the two  accredited
investors  of our  April  12 and May  30,  2006  financings  as  payment  of the
semi-annual  dividend  (8%  per  annum)  per the  terms  of the  Certificate  of
Designation of the Relative  Rights and  Preferences of the Series A Convertible
Preferred Stock. The dividend shares were issued to these investors  pursuant to
the exemption from  registration  provided by Section 4(2) of the Securities Act
for issuances not involving any public offering.

On December 31, 2006, we issued  138,565 shares of common stock to the investors
of our April 12, May 30,  2006,  June 30, 2006 and July 11, 2006  financings  as
payment  of the  semi-annual  dividend  (8%  per  annum)  per the  terms  of the
Certificate of Designation of the Relative  Rights and Preferences of the Series
A  Convertible  Preferred  Stock.  The  dividend  shares  were  issued  to these
investors  pursuant to the exemption from registration  provided by Section 4(2)
of the Securities Act for issuances not involving any public offering.

Pursuant to the financing we closed on January 16, 2007, we issued 207 shares of
our Series B Preferred Stock. The shares were issued to two accredited investors
pursuant to the  exemption  from  registration  provided by Section  4(2) of the
Securities Act for issuances not involving any public offering.

In  connection  with the  January 16, 2007  financing,  we issued the  placement
consultant a placement  consultant  warrant,  exercisable  for a period of three
years from the date of issue  with an  exercise  price of $1.15 per  share.  The
warrant  allows the  placement  consultant  to  purchase  up to (i) 20 shares of
Series  B  Preferred  Stock,  and  each of the  following  warrants,  which  are
identical to the warrants issued to the investors of the financing: (i) Series A
Warrant,  (ii) Series B Warrant,  (iii) Series C Warrant, (iv) Series D Warrant,


                                       23
<PAGE>

(v) Series J Warrant, (vi) Series E Warrant, and (vii) Series F Warrant, each to
purchase 90,004 shares of common stock, except for the Series J Warrants,  which
shall entitle the  consultant to purchase  180,008  shares of common stock.  The
shares  were  issued in  accordance  with the  exemption  from the  registration
provisions of the Securities  Act of 1933, as amended,  provided by Section 4(2)
of such Act for issuances not involving any public offering.

On February 1, 2007 we issued  Kitsilano  Capital Corp.  four 100,000 options to
purchase our common stock,  pursuant to our Consulting  Agreement with them. The
first  option vests on May 1, 2007,  the second on August 1, 2007,  the third on
February 1, 2008 and the fourth on June 1, 2008, so long as Kitsilano  continues
to  provide  services  to us under  the  Consulting  Agreement.  Each  option is
exercisable  for a  period  of three  years  from  the  vesting  date and has an
exercise  price of  $1.20,  $1.40,  $1.60  and $1.80  respectively.  The  shares
underlying the options have piggy-back  registration  rights that required us to
register  the shares in our last  registration  statement.  The  options and the
shares  underlying  were  issued  in  accordance  with  the  exemption  from the
registration  provisions of the Securities Act of 1933, as amended,  provided by
Section 4(2) of such Act for issuances not involving any public offering.

On April 12, 2007, we issued 88,000 shares of common stock to an investor of our
April 12th financing in connection with the exercise of 88,000 Series J warrants
received by such investor as part of the financing.  We received net proceeds of
approximately  $45,600  pursuant to the exercise of these  warrants.  The shares
were issued pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act for issuances not involving any public offering.

On April 12, 2007 we issued  1,266,667  shares of common stock to an investor of
our April  12th  financing  in  connection  with  such  investor's  exercise  of
1,266,667 Series J warrants he received as part of the April 12th financing.  We
received  net  proceeds of  approximately  $655,500  pursuant to the exercise of
these  warrants.   The  shares  were  issued  pursuant  to  the  exemption  from
registration  provided by Section 4(2) of the  Securities  Act for issuances not
involving any public offering.

On April 12, 2007, we issued 188,800 shares of our Series A Preferred  Stock and
the  following  warrants:  (i) Series A Warrant,  (ii)  Series B Warrant,  (iii)
Series C Warrant,  (iv)  Series D Warrant,  (v) Series J Warrant,  (vi) Series E
Warrant,  (vii)  Series F Warrant,  (viii)  Series G Warrant,  and (ix) Series H
Warrant, each to purchase a number of shares of Common Stock equal to 50% of the
number of shares of Series A Preferred Stock purchased,  except for the Series J
Warrants,  which  entitled  the  investor  to purchase a number of shares of our
common  stock equal to 100% of the number of shares of Series A Preferred  Stock
purchased.  We issued a total of 944,000  Warrants.  Each of the  Warrants has a
term of 5 years, except for the Series J Warrants,  which have a term of 1 year.
Each share of the Series A Preferred  Stock is  convertible  into one fully paid
and  nonassessable  share of our common  stock.  These shares and warrants  were
issued  pursuant  to the  exercise  of  188,800  placement  consultant  warrants
received as a result of our April 12, 2006  financing.  We received net proceeds
of approximately $106,000 pursuant to the exercise of these warrants. The shares
were issued pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act for issuances not involving any public offering.


                                       24
<PAGE>


On April 12, 2007,  we issued  188,800  shares of common stock to the  placement
consultant of our April 12, 2006  financing in  connection  with the exercise of
188,800  Series J warrants,  which the  placement  consultant  received from his
exercise of his placement  consultant  warrant,  as described above. We received
net  proceeds  of  approximately  $106,000  pursuant  to the  exercise  of these
warrants.  The shares were issued  pursuant to the exemption  from  registration
provided by Section 4(2) of the  Securities  Act for issuances not involving any
public offering.

On May 8, 2007 we  issued  30,000  shares  of our  common  stock  pursuant  to a
shareholders conversion of 30,000 shares of our Series A Preferred Stock that he
owned.  We did not receive any proceeds  from this  conversion.  The shares were
issued pursuant to the exemption from  registration  provided by Section 4(2) of
the Securities Act for issuances not involving any public offering.

On May 10,  2007 we issued  500,000  shares of our common  stock  pursuant  to a
shareholders  conversion of 500,000 shares of our Series A Preferred  Stock that
he owned. We did not receive any proceeds from this conversion.  The shares were
issued pursuant to the exemption from  registration  provided by Section 4(2) of
the  Securities Act for issuances not involving any public  offering.  On August
31, 2007,  this  shareholder  rescinded the conversion of 430,000 of the 500,000
shares. As a result,  we issued this shareholder  430,000 shares of our Series A
Preferred  Stock and cancelled the 430,000  shares of common stock issued on the
conversion  to  treasury.  The  preferred  shares  were  issued  pursuant to the
exemption from  registration  provided by Section 4(2) of the Securities Act for
issuances not involving any public offering.

On May 12,  2007 we issued  70,800  shares of our  common  stock  pursuant  to a
shareholders conversion of 70,800 shares of our Series A Preferred Stock that he
owned.  We did not receive any proceeds  from this  conversion.  The shares were
issued pursuant to the exemption from  registration  provided by Section 4(2) of
the Securities Act for issuances not involving any public offering.

On June 14, 2007,  our board  approved  issuing a total of 100,000 shares of our
common stock to Pacific  Crab  Seafood  Company,  Inc.  for the  consulting  and
marketing  services  that they will provide to us. We issued  40,000 shares upon
execution of our agreement  with Pacific Crab and the  remaining  60,000 will be
issued in twelve (12) equal installments  during the term of the agreement.  The
shares  were  issued in  accordance  with the  exemption  from the  registration
provisions of the Securities  Act of 1933, as amended,  provided by Section 4(2)
of such Act for issuances not involving any public offering.

On June 30, 2007, we issued  171,274  shares of common stock to the investors of
our 2006 and 2007  financings  as payment of the  semi-annual  dividend  per the
terms of the  Certificate of Designation of the Relative  Rights and Preferences
of the Series A Convertible  Preferred  Stock and  Certificate of Designation of
the Relative Rights and Preferences of the Series B Convertible Preferred Stock.
The dividend  shares were issued to these  investors  pursuant to the  exemption
from  registration  provided by Section 4(2) of the Securities Act for issuances
not involving any public offering.

On August 20, 2007,  a holder of our series A preferred  stock  exercised  their
right to convert  65,335  shares of our  series A  preferred  stock into  65,335


                                       25
<PAGE>

shares of common  stock.  As such,  we issued  65,335 shares of common stock and
canceled  65,335 shares of our series A. The shares were issued  pursuant to the
exemption from  registration  provided by Section 4(2) of the Securities Act for
issuances not involving any public offering.


ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The  following  discussion  should  be read in  conjunction  with our  financial
statements  and the notes  thereto  which appear  elsewhere in this report.  The
results  shown  herein  are not  necessarily  indicative  of the  results  to be
expected  in  any  future  periods.  This  discussion  contains  forward-looking
statements based on current expectations,  which involve  uncertainties.  Actual
results   and  the  timing  of  events   could   differ   materially   from  the
forward-looking  statements as a result of a number of factors.  Readers  should
also  carefully  review  factors set forth in other reports or documents that we
file from time to time with the Securities and Exchange Commission.

OVERVIEW

 In the first  quarter  of our 2007  fiscal  year,  we  started  harvesting  the
remaining balance of our 2004 year class of scallops and completed  transferring
our 2005  year-class  scallops that were still  maturing in our tenured  growing
sites and joint  venture  locations,  to final stage large  grow-out nets on our
farm  sites.  During  the third  quarter  of our 2007  fiscal  year,  we started
harvesting our 2005 year-class scallops,  continued moving our 2006 scallop crop
into final large  grow-out nets at our tenure (farm) sites and started the spawn
of our 2007 year-class. We refer to the year-class of scallops based on when the
scallops were spawned.  Generally,  the harvest  occurs  approximately  22 to 24
months after  spawning of the scallops.  Originally,  we planned to ear-hang our
entire 2005 scallop crop and subsequent  year-classes,  but after  inspection of
growth  rates of the 2004  ear-hung  crops and an analysis of the labor costs of
ear-hanging versus  lantern-style  netting, we decided to use nets for the final
grow-out stage of the 2005 crop and subsequent classes.

During the third  quarter of 2007,  harvest and sales of our 2005 scallop  class
started  slower  than  expected  as we  worked  to  develop  improved  sales and
marketing  efforts as well as our  continuing  efforts to improve our processing
and handling  facilities.  These issues  coupled  with  handling and  harvesting
problems associated with our 2004 ear-hung scallops (during the first and second
quarters of 2007) resulted in lower than anticipated revenues during 2007.

In June 2007,  we hired  marketing  consultants  with over 40 years of  combined
service in the seafood sales and distribution industry.  Traditionally,  we have
sold live scallops  within the Pacific  Northwest  market.  Our seafood sale and
distribution consultants have began to introduce new product lines of fresh meat
and a new unique frozen on the half-shell product that is generating significant
interest.  We are  currently  in the  process  of  expanding  our  live  scallop
distribution  network into Hong Kong and the western  United  States to up to an
additional  15,000 lbs. per week in the near future.  We are also in the process
of  introducing  fresh  scallop  meat into high end  restaurants  in Toronto and
Montreal and frozen on the half-shell product into the eastern United States and
Canada.  In 2008, we expect our overall  product  mixture to consist of 40% live


                                       26
<PAGE>

scallops,  30%  fresh  meat,  30%  frozen  on the  half-shell  and in  2009  and
thereafter  increase the frozen on the  half-shell  to 50%, and the remainder of
30% live and 20% fresh.

Management believes that these new marketing efforts,  coupled with the recently
completed  processing plant will begin yielding  significant  revenue  increases
starting  as early as first  quarter  of 2008  and  continuing  thereafter.  The
completed  processing plant supplies us with an improved processing facility and
will provide us with several  important  advantages,  including a  significantly
larger  inventory  holding and handling area and the ability to mitigate  future
weather  related  harvest delays to our sales. We believe that this will lead to
expedited sale processes in the upcoming months. In addition,  recent experience
gained from harvesting and sorting  scallops on the new longline  systems should
allow for greater future harvesting rates.  Additionally,  we plan on generating
additional  near  term  revenues  via the sale of  scallop  and  possibly  other
shellfish seed.

During the harvesting of our 2005 and sorting of our 2006 scallops  classes,  we
were able to review our mortality  rates and update our class size  projections.
Based on this  review,  we  expect to bring as many 2  million  2005 year  class
scallops to market over the next twelve  months and harvest  over 1 million 2006
year class scallops starting in the fall of 2008.  Originally,  we believed that
our  2006  spawning  would  yield  between  5 and 10  million  scallops  at full
maturity/harvest.  However,  mortality  rates  were  at  the  higher  end of our
projections due to the handling and sorting  learning curve  associated with the
roll-out  of  our  new  longline  and  anchor  system.  Additionally,   problems
associated  with the timing of moving  scallops  to large  nets  (also  known as
"ocean  timing")  and the  density  (i.e.  number  of  scallops  per net  level)
contributed to additional mortality problems.  We anticipate that survival rates
for the future classes, starting with the 2007 scallop class, will significantly
improve  due to the  addition  of more lines and  anchors,  better  spacing  and
sorting within each lantern net,  experience gained from the sorting and farming
of both the 2005 and 2006 year  classes and lessons  learned on ocean timing and
scallop density during the handling of our 2006 scallop class.

During the third  quarter of our 2007 fiscal  year,  we began  spawning our 2007
scallop year-class.  Due to improved hatchery technology and infrastructure (due
to improvements  from recent capital  investments)  and lessons learned from the
2006 spawn,  we were able to increase early stage survival  rates.  As of August
2007,  at least  100  million  scallops  had  reached  2 mm size in our  onshore
hatchery  ponds.  We recently began to move these scallops into grow-out nets at
our farm sites and will  continue  to do so in the coming  months.  Based on the
recent lessons learned and improved farm infrastructure,  we anticipate that the
2007 spawning will yield up to 20 million scallops at full maturity/harvest.  In
fact, we are already  noticing  significant  gains in animal  survival rates and
individual  scallop  size in the 2007 class as  compared  to the 2006 class at a
similar point in its development.  In addition,  we plan to hold up to 5 million
scallops  (from 2007  spawning)  in our  onshore  ponds until  February  2008 as
reserve  scallops.  We expect that at least 2.5 million of these  scallops  will
eventually reach harvest size.

The use of DNA  based  family  analysis  that  started  in  early  2000 and will
continue through 2008, with the goal of breeding high meat yield scallops, began
showing  results in the harvest of our 2004 scallop  class.  Average  weight per
scallop  increased  from  150-180  grams  to  approximately   225-250  grams  --
representing an increase of over 20% from the previous year. Management believes


                                       27
<PAGE>

that the improved meat yield will allow us to continue to demand higher  scallop
prices per animal.  Also, the Pacific scallop,  farmed by us, continues to prove
itself  highly  disease  resistant,  with up to a 95%  survival  rate during the
grow-out phase.

As a result of the above, we believe that the remaining 2005  scallop-class will
produce at least $3.0  million of gross  revenue  over the next  twelve  months.
Although we  originally  anticipated  that the harvest of our 2006 scallop class
would  eventually  result in total gross revenue of up to $14.0 million over the
twelve month period  beginning in April 2008,  we now believe the gross  revenue
from the  harvest  of the 2006  scallop  class  will  only  result in up to $2.0
million gross revenue over a much shorter  period  beginning in the fall of 2008
due to the higher than  expected  mortality  rates and problems with handling of
long  lines  discussed  above.  Based on our  current  projections  for the 2007
scallop  class,  we believe  this  year's  class could  produce  more than $40.0
million  over the life of its  harvest.  Although  the 2006 class is expected to
produce less revenue than originally  expected,  the improving survival rates of
the 2007 class  coupled with the short harvest time of 2006 class is expected to
maintain our overall  revenue  levels  within range of our original  projections
over the next 24 to 36 months.  In 2007,  our cost of goods sold  increased more
rapidly than our overall  revenues.  Part of this increase was  attributable  to
extreme  circumstances  related to costs associated with handling  problems with
our  2004  ear-hang  scallop  class  and  initial  operations  in  our  improved
processing  plant. In future years, we expect this trend to reverse (as the many
of the reasons for the  increased  cold of goods sold were unique to this fiscal
year) and to have our sales increase significantly faster than our cost of goods
sold. As such, we expect our margins to improve in future years.

If our  mortality  rates are better than our current  projections,  our revenues
from the 2005, 2006 and 2007 scallop class could be higher;  conversely,  if our
mortality  rates are worse than we anticipate our revenues for this period could
be lower than we  anticipate.  In addition,  changes in the  anticipated  growth
rates,  projected  harvesting  cycles  and  large  fluctuations  in the price of
scallops or the US-Canadian exchange rate could impact our current projections.

LIQUIDITY AND CASH RESOURCES

At August 31,  2007,  we had a cash  balance  of  approximately  $1,657,000.  We
originally expected to reach positive operating cash flow during the second half
of our 2007 fiscal year, but slower than expected harvest rates and handling and
harvesting  problems  resulted in lower than expected  revenues.  As a result of
recent  processing  improvements,  experience  gained in 2007 and new  marketing
efforts,  we now expect to achieve operating positive cash flow in first half of
2008.  During the year ending August 31, 2007,  we completed one private  equity
financing  and had  investors  exercise  various  warrants  that resulted in net
proceeds of approximately $3,075,000. During the year ending August 31, 2006, we
relied on four  private  equity  financings  that  resulted  in net  proceeds of
approximately $5,140,000.  These 2006 and 2007 financings contain warrants which
if fully  exercised,  could raise  approximately an additional  $49,350,000.  To
date,  exercises of these  warrants  resulted in net  proceeds of  approximately
$1,200,000; accordingly, if all of the remaining warrants from the 2006 and 2007
financings  are  exercised,  we could  receive an  additional  $48,150,000.  The
exercise of the warrants is, however, to a large extent dependent upon the price
of our stock in the public market.  As a result, we cannot guarantee when any of
the warrants  will be exercised,  if at all and, as a result,  the proceeds from
the  exercise  of the  warrants  may not be  available  to us should we  require
additional  financing or ever.  Prior to the  completion  of the private  equity


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<PAGE>

financings in 2006,  our initial  expansion  had been largely  funded by a short
term note with a maximum limit of approximately $1,451,000.  Previously, we have
also  relied on short term loans from  certain  shareholders  to assist with our
working  capital  needs  and to meet  short  term cash  requirements.  We used a
portion of the 2006 private equity financing to repay these short term loans and
as a result we were able to deploy the bulk of the proceeds  from our  financing
toward our business strategy.


SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying  consolidated  financial statements include the accounts of the
acquired  entities since their respective dates of acquisition.  All significant
inter-company amounts have been eliminated.

Cash and equivalents

Cash and equivalents  include cash, bank  indebtedness,  and highly liquid short
term  market  investments  with terms to maturity  of three  months or less.  We
consider all highly liquid  investments  with original  maturities of 90 days or
less to be cash  equivalents.  We maintain  our cash  balances  primarily  in on
financial institution,  which exceeded federally insured limits by $1,561,136 at
August 31,  2007.  We have not  experienced  any losses,  in such  accounts  and
believes  it is not  exposed  to any  significant  credit  risk on cash and cash
equivalents.

Accounts receivable

Accounts  receivable is presented net of allowance  for doubtful  accounts.  The
allowance  for  doubtful  accounts  reflects  estimates  of  probable  losses in
accounts  receivable.  The allowance is determined based on balances outstanding
for over 90 days at the period end date, historical experience and other current
information.

Loans receivable

Loans receivable is presented net of an allowance for loan losses, as necessary.
The loans are written off when collectibility becomes uncertain.

Inventory

We maintain  inventories  of raw  materials  for our  aquaculture  products,  of
biomass (inventory of live aquaculture product being actively  cultivated),  and
of finished goods (aquaculture product ready for sale).

Inventories  are  reported  at the lesser of cost or  estimated  net  realizable
value.  Biomass and finished goods includes  direct and reasonably  attributable
indirect  production  costs related to hatchery,  cultivation,  harvesting,  and
processing  activities.  Carrying  costs per unit are  determined  on a weighted
average basis.


                                       29
<PAGE>


Long term investments

Long  term   investments  are  recorded  at  cost.  We  review  our  investments
periodically to assess whether there is an "other than temporary" decline in the
carrying value of the investment.  We consider whether there is an absence of an
ability  to  recover  the  carrying  value of the  investment  by  reference  to
projected  undiscounted  future cash flows for the investment.  If the projected
undiscounted future cash flow is less than the carrying amount of the asset, the
asset is deemed  impaired.  The  amount of the  impairment  is  measured  as the
difference between the carrying value and the fair value of the asset.

Property, plant, and equipment

Property  and  equipment  are carried at cost,  less  accumulated  depreciation.
Depreciation  is  calculated  by using the  straight-line  method for  financial
reporting  and  accelerated  methods  for  income  tax  purposes.  The  recovery
classifications for these assets are listed as follows:

                                                        Years
                                                  ------------------
Headend Facility and Fiber Infrastructure                20
Manufacturing Equipment                                  3-7
Furniture and Fixtures                                   2-7
Office Equipment                                          5
Leasehold Improvements                              Life of lease
Property and Equipment                                    5
Vehicles                                                  5

Expenditures  for maintenance and repairs are charged against income as incurred
whereas major improvements are capitalized.

Impairment of long-lived assets

We monitor the  recoverability  of  long-lived  assets,  including  property and
equipment and  intangible  assets,  based upon  estimates  using factors such as
expected future asset utilization, business climate, and undiscounted cash flows
resulting  from the use of the related  assets or to be  realized  on sale.  Our
policy is to write down assets to the  estimated net  recoverable  amount in the
period in which it is  determined  likely that the carrying  amount of the asset
will not be recoverable.

Government assistance

Government assistance we receive, such as grants, subsidies, and tax credits, is
recorded as a recovery of the appropriate related expenditure in the period that
the assistance is received.

We have received government assistance in the form of loans, for which repayment
may not be required if we fail to meet sufficient future revenue levels to repay
these loans based on a  percentage  of gross sales for certain  products  over a


                                       30
<PAGE>

defined  period of time.  If we receive  any such  assistance,  it is  initially
recorded as a liability,  until such time as all conditions for  forgiveness are
met, and is then recognized as other income in that period.

Farm license costs

We must pay annual license costs in respect to  government-granted  tenures that
we hold,  which give us the right to use certain  offshore  ocean waters for the
purpose of aquaculture farming.  Such license costs are recognized as an expense
when incurred.

Research and development costs

Development costs include costs of materials, wages, and reasonably attributable
indirect costs incurred by us which are directly attributable to the development
of hatchery  techniques  for sablefish and  shellfish,  these costs are expensed
when incurred.

Research costs are expensed when incurred.

Income taxes

We calculate  our provision  for income taxes in  accordance  with  Statement of
Financial  Accounting  Standards  No. 109  (Accounting  for Income Taxes) ("SPAS
109"),  which requires an asset and liability  approach to financial  accounting
for income  taxes.  This  approach  recognizes  the  amount of taxes  payable or
refundable for the current year, as well as deferred tax assets and  liabilities
attributable  to  the  future  tax  consequences  of  events  recognized  in the
financial  statements  and tax  returns.  Deferred  income taxes are adjusted to
reflect the effects of enacted changes in tax laws or tax rates. Deferred income
tax assets are recorded in the financial statements if realization is considered
more likely than not.

Revenue recognition

We recognize revenue when it is realized or realizable,  and earned. We consider
revenue realized or realizable and earned when there is persuasive evidence of a
contract,  the product has been  delivered or the services have been provided to
the customer,  the sales price is fixed or determinable,  and  collectibility is
reasonably assured.

Our  revenue  is derived  principally  from the sale of  scallops  we produce or
purchase  from third  parties,  and from the sale of seed and farm  supplies  to
other aquaculture  farms.

Cost of goods

Cost of goods sold  consists  primarily of farming,  harvesting  and  processing
costs associated with the growth, transfer and sales preparation of our products
(principally  scallops).  These costs consist primarily of salaries and benefits
and allocated overhead costs for consulting and support personnel engaged in the
farming,  harvesting and processing of our products. All costs are recognized at
time of delivery.


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<PAGE>


Financial instruments

The carrying amount of our financial instruments,  which includes cash, accounts
receivable,  loans receivable,  bank indebtedness,  accounts payable and accrued
liabilities,  short term debt and long term debt  approximate  fair value. It is
management's opinion that we are not exposed to significant  interest,  currency
or credit risk arising from these financial instruments unless otherwise noted.

Derivative financial instruments

In connection with the sale of debt or equity  instruments,  we may sell options
or  warrants to  purchase  our common  stock.  In certain  circumstances,  these
options or warrants may be classified as derivative liabilities,  rather than as
equity.  Additionally,  the debt or  equity  instruments  may  contain  embedded
derivative instruments,  such as embedded derivative features,  which in certain
circumstances  may  be  required  to be  bifurcated  from  the  associated  host
instrument and accounted for separately as a derivative instrument liability.

We account for all derivatives financial instruments in accordance with SFAS No.
133.  Derivative  financial  instruments  are  recorded  as  liabilities  in the
consolidated  balance  sheet,  measured at fair value.  When  available,  quoted
market  prices are used in  determining  fair value.  However,  if quoted market
prices are not  available,  we estimate  fair value using either  quoted  market
prices of financial instruments with similar  characteristics or other valuation
techniques.

The  identification of, and accounting for,  derivative  instruments is complex.
Our derivative instrument liabilities are re-valued at the end of each reporting
period,  with changes in the fair value of the derivative  liability recorded as
charges  or credits to income,  in the period in which the  changes  occur.  For
options, warrants and bifurcated embedded derivative features that are accounted
for as derivative  instrument  liabilities,  we estimate fair value using either
quoted market prices of financial  instruments with similar  characteristics  or
other valuation techniques. The valuation techniques require assumptions related
to the remaining  term of the  instruments  and risk-free  rates of return,  our
current  common  stock  price and  expected  dividend  yield,  and the  expected
volatility  of  our  common  stock  price  over  the  life  of the  option.  The
identification   of,  and  accounting  for,   derivative   instruments  and  the
assumptions  used  to  value  them  can   significantly   affect  our  financial
statements.

Derivative  financial  instruments  that are not designated as hedges or that do
not meet the  criteria for hedge  accounting  under SFAS No. 133 are recorded at
fair value, with gains or losses reported currently in earnings.  All derivative
financial  instruments  held by us at August  31,  2007 were not  designated  as
hedges.

Foreign exchange

The  functional  currency  of our  foreign  subsidiaries  is the  local  foreign
currency.  All assets and  liabilities  denominated  in foreign  currencies  are
translated  into U.S.  dollars at the exchange  rate  prevailing  on the balance
sheet date.  Revenues,  costs and expenses are  translated  at average  rates of
exchange prevailing during the period.  Translation  adjustments  resulting from


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<PAGE>

translation  of  the  subsidiaries'  accounts  are  accumulated  as  a  separate
component  of  shareholders'  equity.  Gains and losses  resulting  from foreign
currency transactions are included in the consolidated  statements of operations
and have not been significant.

Use of estimates

The  preparation  of financial  statements  in  conformity  with U.S.  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect the reported amounts of assets,  liabilities,  revenues,
expenses and  disclosure of contingent  assets and  liabilities.  Such estimates
include  providing for  amortization  of property,  plant,  and  equipment,  and
valuation of inventory. Actual results could differ from these estimates.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance  sheet  arrangements  that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial  condition,  revenues or expenses,  results of operations,  liquidity,
capital expenditures or capital resources that is material to our investors.

INVESTMENTS IN TENURES AS COMPARED TO ESTIMATED MARKET VALUE OF TENURES

We currently carry our investment in Island  Scallops'  tenures at $3,770.  This
amount  represents  the initial  carrying costs of certain  tenures  acquired by
Island  Scallops'  subsidiary.  These  tenures do not expire until various dates
ranging  from 2021 - 2024,  however,  we  believe  that they have an  indefinite
useful life because renewal on expiration is anticipated. The area available for
shellfish  aquaculture within Baynes Sound is fully subscribed,  and as a result
new tenures for new companies are not available through the Canadian  Provincial
application and review  process.  The shellfish  companies  within the Sound are
also well established and sales of tenures are quite rare, making the assessment
of the market value for the Island Scallops tenures difficult.  Historical sales
and government  auction of tenures have received as much as $300,000 (CDN) for a
small beach tenure  (less than 4 acres) and $65,000  CDN) for a small  deepwater
tenure without  infrastructure.  The few tenures on the market over the previous
24 months  suggest  that the current  market value is  approximately  $10,000 to
$25,000  (CDN) per acre.  Based on  listings  of tenures on the coast of British
Columbia,  discussions with local shellfish  growers and individuals from the BC
Assets and Land  Corporation,  and an  independent  appraisal  (commissioned  by
Island Scallops) that recently  estimated the value of our roughly 1018 acres of
tenures, the value is estimated to be approximately  $8,600,000. If the proposed
expansion of two of our tenures is approved,  the estimated  market value of our
overall  tenures would  increase to roughly  $10,600,000.  The estimated  market
value is based on the size,  location and whether they are beach or deepwater in
nature.  However, given the variable nature of the shellfish tenures market, the
actual value that we receive from the sale of a tenure or a partial tenure could
vary significantly from these estimated values.

Although we cannot determine the exact amount we would  ultimately  receive from
the sale of our tenure(s),  based upon the information stated above we expect to
receive more than the carrying cost ($3,770)  from such sale.  Accordingly,  the
carrying  cost of our tenures is not  indicative  of their  actual  value.  This
analysis   indicates  our  cash  generating   capabilities   after   considering
investments  in capital  assets  necessary  to  maintain  and  enhance  existing
operations.


                                       33
<PAGE>


COMPARISON  OF RESULTS FOR THE FISCAL YEAR ENDED AUGUST 31, 2007,  TO THE FISCAL
YEAR ENDED AUGUST 31, 2006.

Revenues. Revenues for the fiscal year ended August 31, 2007, were approximately
$657,000.  We had revenues of  approximately  $528,000 for the fiscal year ended
August 31,  2006.  This is an increase  of  approximately  $129,000 or 24%.  The
increase in our revenue was mainly the result of an increase in the sales of our
own scallops.  In fact,  sales of our own scallops  increased by more than 281%.
Previously,  our  increase  in sales was the result of an increase in oyster and
scallop seed sales and increased  joint venture sales.  As was the case in 2006,
management  continued its emphasis on the  development  and production of larger
scallop  crops.  Management  believes  that our  emphasis on expansion of future
crops will yield a significant increase in revenues starting in 2008 and beyond.

Gross  profit  (loss).  Gross  loss for the year  ended  August  31,  2007,  was
approximately  $379,000,  a increase  of  approximately  $331,000 as compared to
gross loss of roughly $48,000,  for the year ended August 31, 2006. The increase
in the  amount  of  gross  loss  for  2007 (as  compared  to  2006)  was  mainly
attributable to management's continued focus on the expansion and development of
larger scallop crops and larger  scallop  yields for future years.  Part of this
increase was attributable to extreme  circumstances  related to costs associated
with handling  problems with our 2004 ear-hang  scallop class.  We do not expect
these problems to continue in future years. Our cost of sales also increased due
to higher  processing plant and trucking costs as we began to establish a larger
sales effort.  In the future,  we expect our sales to increase more rapidly that
these costs and margins to quickly  improve.  We continued to focus resources on
maintaining,  developing  and tending to our scallop  crops and believe  that we
have  already seen the initial  benefits in increased  sales of our own scallops
and  that we will  continue  to see  additional  benefits  from our  efforts  in
developing larger crops in the first quarter of 2008 and beyond.

General and administrative.  General and administrative  expenses for the fiscal
year ended  August 31,  2007,  were  approximately  $1,222,000.  Our general and
administrative  expenses were  approximately  $512,000 for the fiscal year ended
August 31,  2006.  This is an increase of  approximately  $710,000 or 109%.  Our
increase in general and  administrative  expenses  for the year ended August 31,
2007 was  attributable to costs  associated  with  establishing,  building,  and
supporting our  infrastructure  and included various consulting costs, legal and
accounting fees compensation  paid as result of our recent financing,  overhead,
realized stock compensation,  stock option expenses and salaries.  We anticipate
that these  costs may  continue  to  slightly  rise as we continue to expand our
operations.  However,  we believe  that we now have the  necessary  general  and
administrative staff in place to maintain our expansion into scallop crops of 30
million and beyond.

Stock compensation expense.  During the year ended August 31, 2007, we had stock
compensation  expense of  approximately  $62,000.  The  expense  was for outside
seafood sale and distribution consultants who we hired to help develop new sales
and  marketing  programs.  During the year ended August 31,  2006,  we had stock
compensation  expense  of  approximately  $183,000.  The  expense  was  for  two
consulting groups who would provide services to us. As such, we incurred a stock
compensation expense of approximately $183,000 for year ended August 31, 2006.


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<PAGE>


Other income (expense), net. Interest expense for the year ended August 31, 2007
was approximately $16,000.  Interest expense for the year ending August 31, 2006
was approximately  $696,000.  The decrease in interest expense was mainly due to
the repayment of a large short term note in the late 2006.  Other income for the
year ended August 31, 2007 was approximately $167,000 as opposed to other income
of  approximately  $45,000 for the year ending August 31, 2006.  The increase in
other income was mainly the result of a one time gain of approximately  $122,000
related to the  forgiveness  of a third-party  debt in 2007.  For the year ended
August 31, 2007, we recognized a one-time gain of approximately $5,827,000 which
was related to the change in fair value of warrants  issued to 10  institutional
and accredited  investors in conjunction  with preferred  stock. We recognized a
loss of  approximately  $2,666,000  which was  related to the change in the fair
value of  warrants  issued  to 10  institutional  and  accredited  investors  in
conjunction  with  preferred  stock  financings on April 12, May 30, June 30 and
July 11 and the market price of the common  stock  underlying  such  warrants at
August 31, 2006.


As a result,  other income for the year ended August 31, 2007 was  approximately
$5,978,000 as compared to other expense of approximately $3,316,000 for the year
ended August 31, 2006. This increase was primarily attributed to loss associated
with the change in fair  value of the  recently  issued  warrants  and  interest
expense  related  to the  extension  of a former  bridge  financing  loan.  This
increase was primarily  attributed to gain associated with the  reclassification
of certain  liabilities  associated  with  warrants  issued to  investors in our
Series A and B Preferred Stock financings and the resultant change in fair value
of  the  warrants  following  the  reclassification  (See  Foot  Note  12 to our
Financial Statements  "Reclassification  of Warrant Liabilities  Associated with
Series A and Series B Preferred Financings.").

Net profit (loss).  As a result of the above,  the net income for the year ended
August 31,  2007,  was  approximately  $3,538,000  as  compared to a net loss of
approximately $4,235,000 for the year ended August 31, 2006.

                                  RISK FACTORS

You  should  carefully  consider  the risks  described  below  before  making an
investment in us. All of these risks may impair our business operations.  If any
of the following  risks  actually  occurs our business,  financial  condition or
results of operations could be materially adversely affected.  In such case, the
trading price of our common stock could decline, and you may lose all or part of
your investment.

RISKS RELATING TO AQUACULTURE

We are subject to a number of biological and environmental risks.

Our  business  would be  adversely  affected if our scallop  crop is infected by
Perkinsus Quagwadi.  Perkinsus affects a variety of scallops. In 1992, mortality
due to Perkinsus infection was large and mortality was high, but Island Scallops
was able to overcome this disease by breeding the remaining  stock.  Eight years
of successfully breeding hardy individuals resulted in the remaining populations
of scallops being Perkinsus-free. Although there is a chance that other diseases


                                       35
<PAGE>

may occur,  the Island Scallops hybrid scallop has proven resistant to Perkinsus
disease for the last ten years.


          Paralytic Shellfish Poisoning (PSP or Red Tide) could limit the amount
of scallops available for sale.

         Paralytic Shellfish Poisoning (PSP or red tide) is another concern when
farming  scallops.  The  adductor  muscle  can  be  processed  for  sale  to the
traditional  scallop meat market even when there is a PSP closure.  On the other
hand,  the live animal market is stopped by PSP toxicity.  Sewage  Contamination
(faecal  coliform)  is also  monitored by the Canadian  Food  Inspection  Agency
(CFIA) to avoid this problem.  These types of  contaminants  do not threaten the
crop, it only causes a temporary  displacement  to the marketing of the product.
Island Scallops' aquaculture is not without total risk; however, the development
program over the last decade has reduced the risk of disease and  increased  the
historical grow-out survival rate to 95% over the past six years.  Despite these
advances,  however,  an  outbreak  of  PSP,  even if it did  not  affect  Island
Scallops'  stock,  could have a  depressive  effect on the  shellfish  market in
general, which could then adversely affect our business.

Aquaculture  and  scallop  farming is  subject  to a variety of general  disease
risks.

Bacteria are almost always  associated with  mortalities in the larval stages of
growth.  Control  of  disease  outbreaks  in the  hatchery  consists  of regular
inspection,  growth rates, color and larvae is checked for proper shape.  Proper
hygiene  practices  within the hatchery  minimize  problems  with  Bacteria.  In
general,  scallops are harder to handle and transport and care needs to be taken
when moving  them.  Scallops  can develop a stress  related  disease that can be
avoided by proper handling  conditions  such as temperature,  moisture rates and
time before getting back in the water (maximum time being 24 hours).

Boring sponges and worms can adversely impact our scallop yield.

Boring sponges and worms are organisms  that make holes in the scallop's  shell,
weakening it and  requiring the scallop to make  repairs.  Secreting  additional
layers of shell material to mend these holes directs energy away from growth and
maintenance of the scallop. In cases of severe infestation,  the adductor muscle
may be reduced in weight by up to 50%, and the meat may be discolored.

Our  business  would be  adversely  affected if our scallop  crop is infected by
flatworm.

Flatworms  can be  devastating,  destroying  all seed  within  2  weeks.  Island
Scallops  has managed to minimize  this  problem  and keep  mortalities  down by
keeping the seeds in the pond a little longer so it becomes  larger,  making the
time  spent in the first net  culture  less.  We then move the seeds to a larger
mesh net culture,  which  causes the  flatworms to fall off and no longer pose a
problem. This husbandry technique alleviates the problem to a large degree.

Scallops  raised in the open ocean are  subject to a variety of  predators  that
could adversely impact crop yield.


                                       36
<PAGE>


Starfish are a major predator of scallops,  particularly in bottom  culture.  If
the hanging  techniques are far enough from the bottom,  even during extreme low
tides,  then this  does is not  problematic.  Since  starfish  and crabs  have a
free-swimming  larval  stage as part of their life cycle,  it is  possible  that
these larvae can settle within the "grow-out"  nets and settle there and prey on
these scallops.  However,  with proper husbandry techniques these effects can be
minimized.

Our  business  would be  adversely  affected if a majority  of our scallop  crop
experiences fouling.

Fouling  is  caused  by  settlement  and  growth of  several  organisms  such as
macroalgae,  bryozoans,  barnacles  and  mussels on the nets.  Heavy  fouling of
culture nets and scallops  impedes  growth of the  scallops.  Since most fouling
occurs in  shallower  waters,  hanging  scallops  at deeper  depths  can  reduce
fouling. If culture systems are managed properly, fouling is not a problem.

Aquaculture can be subject to a variety of growing conditions that can adversely
affect product growth and development.

Certain  growing  conditions  and sea  conditions  can  affect the  quality  and
quantity  of  scallops  produced,  decreasing  the  supply of our  products  and
negatively impacting  profitability.  Extreme wave actions tend to make scallops
seasick.  In cases of extreme  seasickness,  scallops stop feeding and growth is
reduced.  This may create  mortality by  weakening  the scallops and making them
susceptible to other problems and diseases. Currently, the water leases owned by
Island  Scallops  are  located  in  areas  where  this  will  prove  to be  less
problematic.  Additionally,  if other environmental  conditions are unfavorable,
growing  conditions in the ocean can greatly inhibit  scallop growth.  Generally
this  risk is  mitigated  by  year-to-year  variations  in  growing  conditions.
However, we cannot guarantee that we will not be negatively  affected,  at least
in the short term, if we experience poor growing conditions.

Increased mortality rates would adversely impact our business.

In general,  increased  mortality rates in juveniles are due to improper feeding
and hatchery  husbandry.  Once scallops are  introduced to the ocean,  increased
mortality  rates are  caused by the above  factors  as well as  fluctuations  in
salinity and currents.  Given the location of Island  Scallops'  current farming
areas, the salinity and currents should not be problematic.  Mortality rates can
also increase due to  overcrowding  problems.  In cases of extreme  overcrowding
scallops actually bite each other and their shells become damaged.

If we are unable to expand our tenures, our projected production may be delayed.

To  increase  our  production  capacity,  we must expand our  tenures.  However,
expanding tenures requires government approval, which can be a timely and costly
process.  Two of our tenures,  Hindoo Creek and Deep Bay, have been approved for
expansion.  Our Denman tenure must be re-zoned before expansion  thereof will be
approved and our Bowser bottom lease Management Plan must be reconfigured before
expansion of that area is approved. Although we are confident that such approval
will be granted after issues raised by local  residents and  fisherman,  such as
the use of surface  floats for our longlines  have been  addressed,  there is no


                                       37
<PAGE>

guarantee that it will be granted.  In the future, we will seek expansion of our
other  tenures,  which also may not be granted.  If we do not receive  expansion
approval  for our  Denman  tenure  and Bowser  bottom  lease,  it will delay our
proposed expansion.

BUSINESS RISKS

We will require additional capital to fund our current business plan.

Our success is dependent on future financings. The aquaculture or marine farming
industry is a  capital-intensive  business,  which requires  substantial capital
expenditures  to develop  and  acquire  farms and to  improve or expand  current
production.  Further,  the farming of marine life and  acquisition of additional
farms may require  substantial  amounts of working capital.  We project the need
for significant capital spending and increased working capital requirements over
the next several years. There can be no assurance that we will be able to secure
such financing on terms, which are acceptable,  if at all. The failure to secure
future  financing with favorable  terms could have a material  adverse effect on
our business and operations.

We are dependent on certain key existing and future personnel.

Our success will depend,  to a large  degree,  upon the efforts and abilities of
our officers and key management employees such as Mr. Saunders,  Mr. Bruce Evans
and Ms.  Patti  Greenham.  The loss of the  services  of one or more of these or
other key employees could have a material  adverse effect on our operations.  We
currently  maintain  key man  life  insurance  on Mr.  Saunders  for a value  of
$1,000,000.  We also have an employment  agreement with Mr. Saunders.  We do not
maintain key man insurance for, nor do we currently have  employment  agreements
with,  any of our other key  employees.  In addition,  as our  business  plan is
implemented,  we will need to recruit and retain  additional  management and key
employees in virtually all phases of our operations.  Key employees will require
a strong background in the marine aquaculture industry. We cannot assure that we
will be able to successfully attract and retain key personnel.

The fact that our  directors and officers own  approximately  43% of our capital
stock  and 60% of our  voting  capital  stock may  decrease  your  influence  on
shareholder decisions.

Our  executive  officers  and  directors,  in the  aggregate,  beneficially  own
approximately 43% of our capital stock and 60% of our voting capital stock. As a
result,  our officers  and  directors,  will have the ability to  influence  our
management and affairs and the outcome of matters  submitted to shareholders for
approval,  including  the election and removal of  directors,  amendments to our
bylaws and any merger,  consolidation or sale of all or substantially all of our
assets.

Our acquisitions and potential future acquisitions involve a number of risks.

Our potential future  acquisitions  involve risks  associated with  assimilating
these  operations  into our company;  integrating,  retaining and motivating key
personnel;   integrating   and  managing   geographically-dispersed   operations
integrating the technology and infrastructures of disparate entities;  and risks
inherent in the husbandry and farming of marine species.

We may have difficulty  competing with larger and  better-financed  companies in
our sector.


                                       38
<PAGE>


In  general,  the  aquaculture  industry  is  intensely  competitive  and highly
fragmented. Many of our competitors have greater financial, technical, marketing
and public  relations  resources than we presently have. Our sales may be harmed
to the  extent we are not able to  compete  successfully  against  such  seafood
producers.

Contamination of our seafood would harm our business.

Because our products are designed for human consumption, our business is subject
to  certain  hazards  and  liabilities   related  to  food  products,   such  as
contamination.  A discovery of  contamination  in any of our  products,  through
tampering  or  otherwise,  could  result in a recall of our  products.  Any such
recall would significantly  damage our reputation for product quality,  which we
believe is one of our principal competitive assets, and could seriously harm our
business  and sales.  Although we maintain  insurance  to protect  against  such
risks,  we may not be able to maintain such  insurance on  acceptable  terms and
such insurance may not be adequate to cover any resulting liability.

We may experience  barriers to conducting  business due to potential  government
regulations.

There are no  hatchery/producer  competitors in the scallop farming  business in
British  Columbia.  The United  States will not allow the farming of the species
farmed in their waters,  without  undergoing an extensive  environmental  review
which may prove costly and  difficult.  If these reviews are  successful  and US
approval obtained,  then this species could be cultured in US waters.  which may
provide increased competition for our products in the US..

Our business may be adversely affected by price volatility.

If market prices for Island Scallops' products decrease, we will incur a loss of
profits.  However,  our operational  costs will increase because we will have to
produce the same quantity to meet the current demand, which will decrease profit
margin. This form of price volatility would be detrimental for our business.

Foreign exchange rates risks, political stability risk, and/or the imposition of
adverse trade regulations could harm our business.

We conduct some of our business in foreign currencies. Our profitability depends
in part on revenues  received in United States dollars as a result of sales into
the United  States.  A decline in the value of the United States dollar  against
the Canadian  dollar would  adversely  affect  earnings from sales in the United
States.  As part of our plans to  acquire  other  businesses  we may  expand our
operations to other countries,  operate those businesses in foreign  currencies,
and export  goods from those  countries.  Thus far,  we have not  engaged in any
financial hedging  activities to offset the risk of exchange rate  fluctuations.
We may in the future, on an as-needed basis, engage in limited financial hedging
activities  to offset the risk of exchange  rate  fluctuations.  There is a risk
that a shift in certain  foreign  exchange rates or the imposition of unforeseen
and adverse  political  instability  and/or trade  regulations  could  adversely
impact the costs of these items and the  liquidity  of our  assets,  and have an
adverse  impact  on our  operating  results.  In  addition,  the  imposition  of


                                       39
<PAGE>

unforeseen  and adverse trade  regulations  could have an adverse  effect on our
exported seafood operations. We expect the volume of international  transactions
to  increase,   which  may  increase  our  exposure  to  future   exchange  rate
fluctuations.

Our common stock may be considered a "penny stock" and may be difficult to sell.

The SEC has adopted  regulations which generally define a "penny stock" to be an
equity  security  that has a market  price of less  than  $5.00  per share or an
exercise price of less than $5.00 per share, subject to specific exemptions. The
market price of our common stock is less than $5.00 per share and, therefore, it
may be designated as a "penny stock"  according to SEC rules.  This  designation
requires  any broker or dealer  selling  these  securities  to disclose  certain
information  concerning  the  transaction,  obtain a written  agreement from the
purchaser  and determine  that the purchaser is reasonably  suitable to purchase
the  securities.  These rules may  restrict the ability of brokers or dealers to
sell our  common  stock and may affect the  ability of  investors  to sell their
shares.


Our  Auditors  have  given  the  Company  a  "Going  Concern"  opinion,  raising
substantial doubt about our ability to continuing to fund our operations.

We have suffered  operating  losses since  inception in our efforts to establish
and execute our business strategy.  As of August 31, 2007, we had a cash balance
of approximately $1,657,000.  Although management believes that we have adequate
funds to maintain our business operations into the next fiscal year and/or until
we become cash flow positive,  we continued to suffer  operational losses in our
2007 fiscal year.  Until our  operations  are able to  demonstrate  and maintain
positive  cash flows,  we may  require  additional  working  capital to fund our
ongoing   operations  and  execute  our  business   strategy  of  expanding  our
operations. Based on these factors, there is substantial doubt about our ability
to continue as a going concern.
















                                       40
<PAGE>


ITEM 7.      FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Edgewater Foods International, Inc.
Qualicum Beach, British Columbia, Canada

We have audited the accompanying  consolidated  balance sheet of Edgewater Foods
International,  Inc.  (the  "Company")  as of August 31,  2007,  and the related
consolidated statements of operations,  stockholders' equity (deficit), and cash
flows for each of the years in the two-year period ended August 31, 2007.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of Edgewater Foods
International, Inc. as of August 31, 2007, and the results of its operations and
its cash flows for each of the years in the  two-year  period  ended  August 31,
2007 in conformity with accounting  principles  generally accepted in the United
States of America.

As discussed in Note 19 to the consolidated financial statements,  the Company's
absence of significant revenues,  recurring losses from operations, and its need
for  additional  financing  in order to fund its  projected  loss in 2008  raise
substantial  doubt about its ability to  continue as a going  concern.  The 2007
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.


/s/ LBB & Associates Ltd., LLP
------------------------------
LBB & Associates Ltd., LLP

Houston, Texas
October 28, 2007

                                      F-1
<PAGE>



                          EDGEWATER FOODS INTERNATIONAL, INC.
                               CONSOLIDATED BALANCE SHEET
                                    AUGUST 31, 2007


                                                                        2007
                                                                   ------------
ASSETS

Current assets:
       Cash                                                        $  1,656,868

       Accounts receivable, net                                          73,423
       Inventory                                                      1,827,513

       Other current assets                                              61,242
                                                                   ------------

         Total current assets                                         3,619,046

Property, plant and equipment, net                                    2,963,234

Loans receivable, related party                                          82,260

Investments in other assets                                               3,770
                                                                   ------------

       Total assets                                                $  6,668,310
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
       Short term debt                                             $    110,800

       Current portion of long term debt                                462,306

       Accounts payable and accrued liabilities                         721,292
                                                                   ------------

       Total current liabilities                                      1,294,398

Long term debt, net current portion                                     526,299
                                                                   ------------


       Total liabilities                                              1,820,697
                                                                   ------------

Stockholders' Equity

       Series A Preferred  stock,  par $0.001, 10,000,000                 7,774
         authorized, 7,773,998 issued and outstanding

       Series B Preferred  stock, par $0.001, 100                          --
         authorized, 207 issued and outstanding

       Common stock, par $0.0001, 100,000,000 authorized,                 2,371
         23,712,700 issued and outstanding
       Additional paid in capital                                    22,471,315
       Accumulated deficit                                          (17,528,303)
       Accumulated other comprehensive income (loss) -                 (105,544)
        foreign exchange adjustment
                                                                   ------------

       Total stockholders' equity                                     4,847,613
                                                                   ------------

       Total liabilities and stockholders' equity                  $  6,668,310
                                                                   ============


See accompanying summary of accounting policies and notes to financial
statements

                                      F-2
<PAGE>




                       EDGEWATER FOODS INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      YEARS ENDED AUGUST 31, 2007 and 2006

                                                       2007             2006
                                                  ------------     ------------


Revenue                                           $    657,065     $    527,623
Cost of goods sold                                   1,036,313          576,069
                                                  ------------     ------------

Gross profit (loss)                                   (379,248)         (48,446)
                                                  ------------     ------------

Expenses:
      General and administrative expenses            1,222,184          512,370
      Salaries and benefits                            319,008          323,186
                                                  ------------     ------------


Total operating expenses                            (1,541,192)        (835,556)
                                                  ------------     ------------

Loss from operations                                (1,920,440)        (884,002)
                                                  ------------     ------------

Other income (expense):
      Interest (expense), net                          (15,876)        (695,889)
      Change in fair value of warrants               5,826,631       (2,665,571)
      Other income (expense)                           167,144           45,185
                                                  ------------     ------------

       Total other income (expense), net             5,977,899       (3,316,275)
                                                  ------------     ------------

Net income (loss)                                    4,057,458       (4,200,277)
                                                  ============     ============

Dividend on preferred stock                           (518,900)         (34,709)
                                                  ------------     ------------

Net income (loss) applicable to
      common shareholders                            3,538,558       (4,234,986)

Foreign currency translation                           150,776          (85,917)
                                                  ------------     ------------

Accumulated other comprehensive
      income (loss)                               $  3,689,334     $ (4,320,903)
                                                  ============     ============

Net income (loss) per Share
      Basic                                       $       0.16     $      (0.20)
      Diluted                                     $       0.11     $      (0.20)

Weighted average shares outstanding
      Basic                                         22,228,633       20,969,400
      Diluted                                       32,273,888       20,969,400

See accompanying summary of accounting policies and notes to financial
statements

                                      F-3
<PAGE>


<TABLE>

<CAPTION>

                          EDGEWATER FOODS INTERNATIONAL
                     CONSOLIDATED STATEMENT OF STOCKHOLDERS'
                    EQUITY FOR THE YEAR ENDED AUGUST 31, 2007



                                                                      Preferred Stock
                                                         Series A                   Series B                   Common Stock
                                               ---------------------------------------------------------------------------------
                                                    Number        Value         Number         Value       Number           Value
                                               -----------    -----------    -----------   -----------   -----------    -----------
<S>                                                                             <C>        <C>           <C>            <C>

Balance at August 31, 2005                            --             --             --            --      20,585,400          2,059

Comprehensive loss

  Net income (loss)

  Foreign

Total comprehensive loss



Common stock cancelled                                --             --             --            --        (150,000)           (15)


Common stock issued for services                      --             --             --            --         525,000             52


Common stock issued for dividends                     --             --             --            --          22,860              2

Preferred Series A Stock issued in
connection with financing                        7,887,999          7,888           --            --            --             --



Value Assigned to Warrants                            --             --             --            --            --             --

                                               -----------    -----------    -----------   -----------   -----------    -----------

Balance at August 31, 2006                       7,887,999          7,888           --            --      20,983,260         2,098
                                               ===========    ===========    ===========   ===========   ===========    ===========

Comprehensive loss

  Net income (loss)

  Foreign

Total comprehensive loss



Conversion of Series A Preferred Stock            (302,801)          (303)          --            --         302,801             30


Common stock issued for dividends                     --             --             --            --         309,839             31


Preferred Series B Stock issued in
connectionwith financing                              --             --              207          --            --             --



Value Assigned to Series B Warrants                   --             --             --            --            --             --

Issue of Common and Series A preferred
Stock for warrants, net of expense                 188,800            189           --            --       2,076,800            208


Stock Option expense                                  --             --             --            --            --             --


Series A Warrants reclassification                    --             --             --            --            --             --


Series B Warrants reclassification                    --             --             --            --            --             --


 Common Stock issues for Services                     --             --             --            --          40,000              4

                                               -----------    -----------    -----------   -----------   -----------    -----------

 Balance at August 31, 2007                      7,773,998          7,774            207          --      23,712,700          2,371
                                               ===========    ===========    ===========   ===========   ===========    ===========





                                                                 Other
                                                              Comprehensive
                                                 Additional      Income -
                                                  Paid in     Foreign Exchange Accumulated
                                                  Capital      Adjustment       Deficit          Total
                                                 -----------    -----------    -----------    -----------

Balance at August 31, 2005                         3,151,800       (170,403)    (4,341,406)    (1,357,950)

Comprehensive loss

  Net income (loss)                                                             (4,200,277)    (4,200,277)

  Foreign                                                           (85,917)                      (85,917)
                                                                                              -----------
Total comprehensive loss
                                                                                               (4,286,194)


Common stock cancelled                                    15           --             --             --


Common stock issued for services                     702,448           --             --          702,500


Common stock issued for dividends                     34,707           --         (34,709)          --

Preferred Series A Stock issued in
connection with financing                          5,132,136           --             --        5,140,024


Value Assigned to Warrants                        (9,021,106)          --      (10,472,774)   (19,493,880)
                                                 -----------    -----------    -----------    -----------

Balance at August 31, 2006                               --        (256,320)   (19,049,166)   (19,295,500)
                                                 ===========    ===========    ===========    ===========

Comprehensive loss

  Net income (loss)                                                              4,057,458      4,057,458

  Foreign                                                                          150,776        150,776
                                                                                              -----------
Total comprehensive loss
                                                                                                4,208,234


Conversion of Series A Preferred Stock                   273           --             --             --


Common stock issued for dividends                    518,869           --         (518,900)          --


Preferred Series B Stock issued in
connectionwith financing                           1,864,502           --             --        1,864,502



Value Assigned to Series B Warrants               (2,099,044)          --       (2,017,695)    (4,116,739)

Issue of Common and Series A preferred
Stock for warrants, net of expense                 1,189,042           --        1,189,439


Stock Option expense                                 486,118           --             --          486,118


Series A Warrants reclassification                17,364,812           --             --       17,364,812


Series B Warrants reclassification                 3,084,747           --             --        3,084,747


 Common Stock issues for Services                     61,996           --             --           62,000

                                                 -----------    -----------    -----------    -----------

 Balance at August 31, 2007                       22,471,315       (105,544)   (17,528,303)     4,847,613
                                                 ===========    ===========    ===========    ===========

</TABLE>



See accompanying summary of accounting policies and notes to financial
statements




                                      F-4
<PAGE>

<TABLE>

<CAPTION>

                       EDGEWATER FOODS INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      YEARS ENDED AUGUST 31, 2007 and 2006

                                                                 2007            2006
                                                            ------------    ------------
<S>                                                                         <C>

Cash flows from operating activities:

     Net income (loss)                                      $  4,057,458    $ (4,200,277)

     Adjustments  to reconcile  net income  (loss) to net
     cash used in operating activities:
       Depreciation and amortization                             351,092         123,008
       Changes in fair value of warrants                      (5,826,630)      2,665,570
       Stock option expense                                      486,118            --
       Common stock issued for services                           62,000         702,500
       Gain on forgiveness of debt                              (158,728)           --

Changes in current assets and liabilities:
       Accounts receivable                                       (34,573)        (38,850)
       Prepaid expenses                                          (16,661)        (16,061)
       Other current assets                                         --            (2,628)
       Loan receivable                                           (59,245)           --
       Inventory                                                (575,462)       (711,925)
       Accounts payable                                           33,198         197,681
       Bank overdrafts                                              --           (38,538)
                                                            ------------    ------------

Net cash used in operating activities                         (1,681,433)     (1,319,520)
                                                            ------------    ------------

Cash flows from investing activities:

     Purchase of property, plant and equipment                (1,408,247)       (784,291)
                                                            ------------    ------------

Net cash used in investing activities                         (1,408,247)       (784,291)
                                                            ------------    ------------

Cash flows from financing activities:


     Net proceeds from line of credit                               --           (64,675)
     Proceeds from short term debt                                 4,175         862,451
     Payment of short term debt                                 (199,384)     (1,609,901)
     Proceeds from long term debt                                237,486          62,112
     Payment of long term debt                                  (259,688)       (382,456)
     Common stock issued for cash                              1,083,239            --
     Preferred stock issued for cash                           1,970,702       5,140,024
                                                            ------------    ------------

Net cash provided by financing activities                      2,836,530       4,007,555
                                                            ------------    ------------


Foreign currency translation effect                               93,276         (87,562)
                                                            ------------    ------------

Net increase (decrease) in cash                                 (159,874)      1,816,182



                                      F-5
<PAGE>



Cash, beginning of period                                      1,816,742             560
                                                            ------------    ------------

Cash, end of period                                         $  1,656,868    $  1,816,742
                                                            ============    ============

Supplemental disclosure of cash flow information

Net cash paid during year ended
Interest                                                    $     31,533    $    160,269
                                                            ============    ============
Income taxes                                                $       --      $       --
                                                            ============    ============

Supplemental disclosure of non-cash flow
information


Issuance of stock for dividends                             $    518,900    $       --
                                                            ============    ============

Warrant liability incurred in connection with financing     $  4,116,739    $       --
                                                            ============    ============

Reclassification of warrant liability to equity             $(20,449,559)   $       --
                                                            ============    ============

</TABLE>

See accompanying summary of accounting policies and notes to financial
statements










                                      F-7
<PAGE>


                      EDGEWATER FOODS INTERNATIONAL , INC.

                   NOTES TO CONSOLIDATED Financial Statements

NOTE 1.  BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS

Edgewater Foods International Inc., a Nevada Corporation,  is the parent company
of Island Scallops Ltd., a Vancouver Island aquaculture company. Island Scallops
was  established  in 1989 and for  over 15 years  has  successfully  operated  a
scallop  farming and marine hatchery  business.  Island Scallops is dedicated to
the  farming,  processing  and  marketing  of high  quality,  high value  marine
species: scallops and sablefish.

NOTE 2.  SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying  consolidated  financial statements include the accounts of the
acquired  entities since their respective dates of acquisition.  All significant
inter-company amounts have been eliminated.

Cash and equivalents

Cash and equivalents  include cash, bank  indebtedness,  and highly liquid short
term  market  investments  with terms to maturity  of three  months or less.  We
consider all highly liquid  investments  with original  maturities of 90 days or
less to be cash  equivalents.  We maintain  our cash  balances  primarily  in on
financial institution,  which exceeded federally insured limits by $1,561,136 at
August 31,  2007.  We have not  experienced  any losses,  in such  accounts  and
believes  it is not  exposed  to any  significant  credit  risk on cash and cash
equivalents.

Accounts receivable

Accounts  receivable is presented net of allowance  for doubtful  accounts.  The
allowance  for  doubtful  accounts  reflects  estimates  of  probable  losses in
accounts  receivable.  The allowance is determined based on balances outstanding
for over 90 days at the period end date, historical experience and other current
information.

Loans receivable

Loans receivable is presented net of an allowance for loan losses, as necessary.
The loans are written off when collectibility becomes uncertain.

Inventory

We maintain  inventories  of raw  materials  for its  aquaculture  products,  of
biomass (inventory of live aquaculture product being actively  cultivated),  and
of finished goods (aquaculture product ready for sale).


                                      F-8
<PAGE>


Inventories  are  reported  at the lesser of cost or  estimated  net  realizable
value.  Biomass and finished goods includes  direct and reasonably  attributable
indirect  production  costs related to hatchery,  cultivation,  harvesting,  and
processing  activities.  Carrying  costs per unit are  determined  on a weighted
average basis.

At August 31, 2007, inventory consisted of the following:

Biomass (Scallops):                         $1,827,513

Reclassification

Certain  amounts in the 2006  financial  statements  have been  reclassified  to
conform to the 2007 financial statement presentation.

Long term investments

Long  term   investments  are  recorded  at  cost.  We  review  our  investments
periodically to assess whether there is an "other than temporary" decline in the
carrying value of the investment.  We consider whether there is an absence of an
ability  to  recover  the  carrying  value of the  investment  by  reference  to
projected  undiscounted  future cash flows for the investment.  If the projected
undiscounted future cash flow is less than the carrying amount of the asset, the
asset is deemed  impaired.  The  amount of the  impairment  is  measured  as the
difference between the carrying value and the fair value of the asset.

Property, plant, and equipment

Property  and  equipment  are carried at cost,  less  accumulated  depreciation.
Depreciation  is  included  with  general  and  administrative  expenses  in the
accompanying  statement of operations and calculated by using the  straight-line
method for financial  reporting and accelerated methods for income tax purposes.
The recovery classifications for these assets are listed as follows:

                                                        Years
                                                  ------------------
Headend Facility and Fiber Infrastructure                20
Manufacturing Equipment                                  3-7
Furniture and Fixtures                                   2-7
Office Equipment                                          5
Leasehold Improvements                              Life of lease
Property and Equipment                                    5
Vehicles                                                  5

Expenditures  for maintenance and repairs are charged against income as incurred
whereas major improvements are capitalized.



                                      F-9
<PAGE>


Change in Depreciation Method

Effective  September  1,  2006,  as  a  result  of  management's  evaluation  of
long-lived   depreciable   assets,  we  adopted  the  straight-line   method  of
depreciation for all property, plant and equipment.  Under the new provisions of
SFAS No. 154  "Accounting  Changes and Error  Corrections,  a replacement of APB
Opinion  No.  20 and FASB  Statement  No.  3,"  which  becomes  effective  as of
September  1, 2006,  a change in  depreciation  method is treated as a change in
estimate. The effect of the change in depreciation method will be reflected on a
prospective basis beginning September 1, 2006, and prior period results will not
be restated.  As the results of  management's  evaluation  indicated the current
estimated useful lives of our assets were appropriate,  the depreciable lives of
property,  plant and equipment  will not be changed.  We believe that the change
from the declining balance  depreciation method to the straight-line method will
better reflect the pattern of  consumption of the future  benefits to be derived
from those assets being  depreciated and will provide a better matching of costs
and revenues over the assets' estimated useful lives.

Impairment of long-lived assets

We monitor the recoverability of long-lived assets,  including  property,  plant
and equipment and intangible assets,  based upon estimates using factors such as
expected future asset utilization, business climate, and undiscounted cash flows
resulting  from the use of the related  assets or to be  realized  on sale.  Our
policy is to write down assets to the estimated net recoverable  amount,  in the
period in which it is  determined  likely that the carrying  amount of the asset
will not be  recoverable.  At August 31, 2007 no indication  of  impairment  was
present.

Government assistance

Government assistance we receive, such as grants, subsidies, and tax credits, is
recorded as a recovery of the appropriate related expenditure in the period that
the assistance is received.

We have received government assistance in the form of loans, for which repayment
may not be required if we fail to meet sufficient future revenue levels to repay
these loans based on a  percentage  of gross sales for certain  products  over a
defined period of time. Such assistance, if received, is initially recorded as a
liability,  until such time as all  conditions for  forgiveness  are met, and is
then recognized as other income in that period.

Farm license costs

We must pay annual license costs in respect to  government-granted  tenures that
it holds,  which gives us the right to use certain offshore ocean waters for the
purpose of aquaculture farming.  Such license costs are recognized as an expense
when incurred.

Research and development costs

Development costs include costs of materials, wages, and reasonably attributable
indirect costs incurred by us which are directly attributable to the development
of hatchery  techniques  for sablefish and  shellfish.  These costs are expensed
when incurred.


                                      F-10
<PAGE>


Research costs are expensed when incurred.

Income taxes

We calculate  our provision  for income taxes in  accordance  with  Statement of
Financial  Accounting  Standards  No. 109  (Accounting  for Income Taxes) ("SFAS
109"),  which requires an asset and liability  approach to financial  accounting
for income  taxes.  This  approach  recognizes  the  amount of taxes  payable or
refundable for the current year, as well as deferred tax assets and  liabilities
attributable  to  the  future  tax  consequences  of  events  recognized  in the
financial  statements  and tax  returns.  Deferred  income taxes are adjusted to
reflect the effects of enacted changes in tax laws or tax rates. Deferred income
tax assets are recorded in the financial statements if realization is considered
more likely than not.

Revenue recognition

We recognize revenue when it is realized or realizable,  and earned. We consider
revenue  realized or realizable and earned when it has persuasive  evidence of a
contract,  the product has been  delivered or the services have been provided to
the customer,  the sales price is fixed or determinable,  and  collectibility is
reasonably assured.

Our  revenue  is derived  principally  from the sale of  scallops  we produce or
purchase  from third  parties,  and from the sale of seed and farm  supplies  to
other aquaculture  farms.

Cost of goods

Cost of goods sold  consists  primarily of farming,  harvesting  and  processing
costs associated with the growth, transfer and sales preparation of our products
(principally  scallops).  These costs consist primarily of salaries and benefits
and allocated overhead costs for consulting and support personnel engaged in the
farming,  harvesting and processing of our products. All costs are recognized at
time of delivery. Financial instruments

The carrying amount of our financial instruments,  which includes cash, accounts
receivable,  loans receivable,  bank indebtedness,  accounts payable and accrued
liabilities,  short term debt, shareholder debt, and long term debt, approximate
fair value.  It is  management's  opinion that we are not exposed to significant
interest,  currency  or credit risk  arising  from these  financial  instruments
unless otherwise noted.

Derivative Financial Instruments

In connection with the sale of debt or equity  instruments,  we may sell options
or  warrants to  purchase  our common  stock.  In certain  circumstances,  these
options or warrants may be classified as derivative liabilities,  rather than as
equity.  Additionally,  the debt or  equity  instruments  may  contain  embedded
derivative instruments,  such as embedded derivative features,  which in certain
circumstances  may  be  required  to be  bifurcated  from  the  associated  host


                                      F-11
<PAGE>

instrument and accounted for separately as a derivative instrument liability.

We account for all derivatives financial instruments in accordance with SFAS No.
133.  Derivative  financial  instruments  are  recorded  as  liabilities  in the
consolidated  balance  sheet,  measured at fair value.  When  available,  quoted
market  prices are used in  determining  fair value.  However,  if quoted market
prices are not  available,  we estimate  fair value using either  quoted  market
prices of financial instruments with similar  characteristics or other valuation
techniques.

The  identification of, and accounting for,  derivative  instruments is complex.
Our derivative instrument liabilities are re-valued at the end of each reporting
period,  with changes in the fair value of the derivative  liability recorded as
charges  or credits to income,  in the period in which the  changes  occur.  For
options, warrants and bifurcated embedded derivative features that are accounted
for as derivative  instrument  liabilities,  we estimate fair value using either
quoted market prices of financial  instruments with similar  characteristics  or
other valuation techniques. The valuation techniques require assumptions related
to the remaining  term of the  instruments  and risk-free  rates of return,  our
current  common  stock  price and  expected  dividend  yield,  and the  expected
volatility  of  our  common  stock  price  over  the  life  of the  option.  The
identification   of,  and  accounting  for,   derivative   instruments  and  the
assumptions  used  to  value  them  can   significantly   affect  our  financial
statements.

Derivative  financial  instruments  that are not designated as hedges or that do
not meet the  criteria for hedge  accounting  under SFAS No. 133 are recorded at
fair value, with gains or losses reported currently in earnings.  All derivative
financial  instruments  we held as of August 31, 2007,  were not  designated  as
hedges.

Foreign exchange

The functional  currency of our foreign subsidiary is the local foreign currency
(Canadian dollars). All assets and liabilities denominated in foreign currencies
are translated into U.S.  dollars at the exchange rate prevailing on the balance
sheet date.  Revenues,  costs and expenses are  translated  at average  rates of
exchange prevailing during the period.  Translation  adjustments  resulting from
translation  of  the  subsidiaries'  accounts  are  accumulated  as  a  separate
component  of  shareholders'  equity.  Gains and losses  resulting  from foreign
currency transactions are included in the consolidated  statements of operations
and have not been significant.

Use of estimates

The  preparation  of financial  statements  in  conformity  with U.S.  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect the reported amounts of assets,  liabilities,  revenues,
expenses and  disclosure of contingent  assets and  liabilities.  Such estimates
include  providing for  amortization  of property,  plant,  and  equipment,  and
valuation of inventory. Actual results could differ from these estimates.

Concentration of risk

We operate  in the  regulated  aquaculture  industry.  Material  changes in this
industry or the applicable  regulations  could have a significant  impact on our
business.


                                      F-12
<PAGE>


The quality and quantity of the aquaculture  products we cultivate,  harvest and
process  could  be  impacted  by  biological  and  environmental  risks  such as
contamination,  parasites, predators, disease and pollution. These factors could
severely restrict our ability to successfully market our products.

During the year ended  August 31, 2007,  four  customers,  Sea World  Fisheries,
TriStar   Seafood  Supply  Ltd.,   Port  Hardy  Seafood  Ltd.  and   Lobsterman,
individually  accounted for 17%, 13%, 12% and 12% or our revenues  respectively,
and we therefore  are  materially  dependent  upon such  customers.  Our ongoing
operations are dependent on continued business from these customers.

Location risk

Most, if not all, of our aquaculture are  concentrated in one growing region off
the coast of Vancouver Island,  British Columbia. As such, if there were a major
environmental disaster, our ongoing operations could be materially impacted.

Stock-based compensation

We account for stock-based  employee  compensation  arrangements  using the fair
value method in accordance  with the provisions of the FASB issued  Statement of
Financial  Accounting  Standards No, 123 (revised  2004)  (Share-Based  Payment)
("SFAS 123R").  SFAS 123R is a revision of SFAS 123  (Accounting for Stock-Based
Compensation), and supersedes Accounting Principles Beard ("APB") Opinion No. 25
(Accounting  for Stock Issued to  Employees).  SFAS 123R  requires that the fair
value of employees  awards  issued,  modified,  repurchased  or cancelled  after
implementation,  under share-based payment  arrangements,  be measured as of the
date the award is issued, modified, repurchased or cancelled. The resulting cost
is then recognized in the statement of earnings over the service period.

We  periodically  issue common  stock for  acquisitions  and services  rendered.
Common stock issued is valued at the estimated fair market value,  as determined
by our management and board of directors.  Management and the board of directors
consider market price quotations, recent stock offering prices and other factors
in determining  fair market value for purposes of valuing the common stock.  The
fair value of each option  granted is  estimated  on the date of grant using the
Black-Scholes   option-pricing   model  with  the   various   weighted   average
assumptions,  including dividend yield,  expected volatility,  average risk-free
interest rate and expected lives

Basic and diluted net loss per share

Basic income or loss per share  includes no dilution and is computed by dividing
net income or loss by the  weighted-average  number of common shares outstanding
for the period. Diluted income or loss per share includes the potential dilution
that could occur if  securities  or other  contracts  to issue common stock were
exercised  or converted  into common stock (using the treasury  stock method for
stock  options and using the  if-converted  method for  convertible  notes),  if
dilutive.


                                      F-13
<PAGE>


The following is a  reconciliation  of the  numerators and  denominators  of the
basic and diluted net income per share  computations  (in thousands,  except per
share data):



                                                         Year ending August 31,
                                                                  2007
Numerator:
  Net income                                                      $  3,358,558

Denominator:                                                                --
  Denominator for basic net income per share:                       22,228,633

  Weighted average dilutive potential common shares

  Series A Preferred Stock                                           7,752,699
  Series B Preferred Stock                                           1,114,574
  Options and warrants                                               1,177,982
                                                                    ----------
  Denominator for diluted net income per share                      32,273,888
                                                                    ==========

  Basic net income per share                                             $0.16

  Diluted net income per share                                           $0.11

The computation of diluted net income per share for the fiscal year ended August
31,  2007,  excludes the impact of options to purchase  2.86  million  shares of
common   stock  and  warrants  to  purchase   24.04  shares  of  common   stock,
respectively,  as such an impact  would be  anti-dilutive.  The  treasury  stock
effect of options and warrants to purchase shares of common stock outstanding at
August 31,  2006 has not been  included in the  calculation  of the net loss per
share as such effect would have been anti-dilutive.  As a result of these items,
the basic and  diluted  loss per share for the year  ending  August 31, 2006 are
presented are identical.

 Recent accounting pronouncements

During  September  2006,  the Securities  and Exchange  Commission  issued Staff
Accounting  Bulletin No. 108 ("SAB 108"),  Considering the Effects of Prior Year
Misstatements   when   Quantifying   Misstatements  in  Current  Year  Financial
Statement.  This SAB  provides  guidance on how the effects of the  carryover or
reversal of prior year  misstatements  should be  considered  in  quantifying  a
current year misstatement. This interpretation is effective for the first fiscal
year ending  after  November  15,  2006.  We do not expect the  adoption of this
interpretation  to have an  impact  on our  financial  position  or  results  of
operations.


                                      F-14
<PAGE>


In December 2006,  the FASB issued FASB Staff Position EITF 00-19-2,  Accounting
for Registration  Payment  Arrangements  ("FSP EITF 00-19-2").  FSP EITF 00-19-2
specifies  that the contingent  obligation to make future  payments or otherwise
transfer consideration under a registration payment arrangement,  whether issued
as a separate agreement or included as a provision of a financial  instrument or
other agreement, should be separately recognized and measured in accordance with
FASB Statement No. 5,  Accounting  for  Contingencies.  A  registration  payment
arrangement  is defined in FSP EITF 00-19-2 as an  arrangement  with both of the
following  characteristics:  (1) the arrangement  specifies that the issuer will
endeavor  (a) to file a  registration  statement  for the  resale  of  specified
financial  instruments  and/or for the resale of equity shares that are issuable
upon  exercise or  conversion of specified  financial  instruments  and for that
registration statement to be declared effective by the US SEC within a specified
grace  period,  and/or (b) to maintain  the  effectiveness  of the  registration
statement  for a  specified  period  of  time  (or in  perpetuity);  and (2) the
arrangement requires the issuer to transfer consideration to the counterparty if
the  registration  statement  for the  resale  of the  financial  instrument  or
instruments  subject  to  the  arrangement  is  not  declared  effective  or  if
effectiveness of the registration statement is not maintained.  FSP EITF 00-19-2
is effective for registration payment arrangements and the financial instruments
subject to those  arrangements  that are entered into or modified  subsequent to
December  21,  2006.  For  registration   payment   arrangements  and  financial
instruments  subject to those  arrangements  that were entered into prior to the
issuance  of  FSP  EITF  00-19-2,  this  guidance  is  effective  for  financial
statements  issued for fiscal years  beginning  after  December  15,  2006,  and
interim  periods within those fiscal years. We do not expect the adoption of FSP
EITF 00-19-2 to have a material impact on our consolidated financial statements.

In  February  2007,  the FASB issued  SFAS No.  159,  The Fair Value  Option for
Financial Assets and Financial  Liabilities  ("SFAS 159") which permits entities
to choose to measure many financial  instruments and certain other items at fair
value that are not  currently  required to be  measured at fair value.  SFAS 159
will be effective for us on September 1, 2008. We are currently  evaluating  the
impact of adopting SFAS 159 on our financial  position,  cash flows, and results
of operations.

Management  has  evaluated  other recent  accounting  pronouncements  and do not
believe  that  the  adoption  of  these  would  have a  material  impact  on our
consolidated financial statements.

NOTE 3.  PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at August 31, 2007 consisted of the following:



                                            Accumulated      Net Book
                                Cost        Amortization     Value
                            -----------------------------------------

Land                        $   237,534    $      --      $   237,534
Buildings                       953,896       (256,913)       696,983
Seawater piping and tanks       630,877       (308,509)       322,368




                                      F-15

<PAGE>

Boats and barge                 398,551       (151,355)       247,196
Field equipment               2,425,922     (1,012,682)     1,413,240
Office equipment                 19,556        (14,044)         5,512
Vehicles                         66,466        (39,778)        26,688
Computer equipment               28,021        (14,308)        13,713
                            -----------    -----------    -----------
                            $ 4,760,823    $(1,797,589)   $ 2,963,234
                            ===========    ===========    ===========


Depreciation  expense  for  the  years  ended  August  31,  2007  and  2006  was
approximately $351,000 and 123,000, respectively.

NOTE 4.  RELATED PARTY TRANSACTIONS

We have eight secured notes receivable from RKS Laboratories,  Inc., a Vancouver
research and  development  company that is working towards  developing  superior
strains of scallops with  beneficial  traits such as higher meat yield and rapid
growth.  (Robert  Saunders,  our President and CEO, owns 100% of RKS.) The first
seven  non-interest  bearing notes in the combined amount of $73,701 are secured
by all assets of RKS were originally due on or before various dates between June
15, 2007 and May 31, 2008,  but were recently  extended to August 31, 2008.  The
eighth non-interest  bearing note in the amount of $8,559 is also secured by all
assets of RKS is due on or before August 31, 2008. These amounts are included in
assets as loans receivable.

NOTE 5.  INVESTMENTS IN TENURES

We carry our  Investment  in Tenures at $3,770 at August 31,  2007.  This amount
represents the carrying costs of certain  shellfish  tenures  acquired by Island
Scallops' subsidiary,  377332 B.C. Ltd. Shellfish tenures are government-granted
rights  allowing  limited use of offshore waters for the purposes of cultivation
of shellfish.  The granting of shellfish tenure rights are the responsibility of
the  Provincial  (British  Columbia)  Government  and not the  Canadian  Federal
Government.  As  such,  the  government  assistance  that we  receive  via  loan
agreement  with various  Federal  Agencies has no effect on our ability to renew
and/or modify these tenure  agreements.  The tenure held by 377332 B.C. Ltd. has
an expiration date of July 10, 2021. Other shellfish  tenures held by us and our
subsidiaries have expiration dates ranging from 2021 to 2024.

These tenures are considered to have an indefinite  useful life because  renewal
on expiration is anticipated, and are not subject to amortization.

NOTE 6.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Included in accounts  payable and accrued  liabilities are balances  outstanding
related  to credit  cards held in the name of one of our  shareholders  totaling
$25,578 at August 31, 2007.  We used these credit cards as a means of short term
financing and incur interest charges on such unpaid balances.


                                      F-16
<PAGE>


Included in accounts  payable and accrued  liabilities at August 31, 2007, is an
amount of $124,290 in respect to an agreement  to purchase  geoduck seed from us
(for additional information see Note 13 - Contingent Liabilities).

Included in accounts  payable and accrued  liabilities  at August 31, 2007 is an
amount of $87,869  payments due and interest accrued in respect to the loan from
the National Research Council of Canada Industrial  Research  Assistance Program
(see Note 8 - Long Term Debt for additional information).

NOTE 7.  SHORT TERM DEBT

Included in  short-term  debt at August 31,  2007,  is  estimated  royalties  of
$62,734 payable to a third party from whom the former sole shareholder of Island
Scallops  originally  acquired  the  shares of Island  Scallops.  The 1992 share
purchase  agreement (for Island  Scallops)  provided that the third party was to
receive 3% of revenues  from Island  Scallops as earned,  on a quarterly  basis,
throughout  the period from  December 1, 1992 to November  30,  2002.  The third
party  holds a first  charge  (or  first  lien)  over our  inventory  (including
broodstock) in the amount of $326,909 in support of its royalty entitlement. The
third  party has not taken  further  action to enforce  payment  of the  arrears
liability.  To date, we have accrued the entire  balance of $62,734 as a current
liability and we plan to pay it with available funds in the near future.

Included  in  short-term  notes  payable at August  31,  2007,  is an  unsecured
non-interest bearing demand loan from an individual with a face value of $47,287
and no specific terms of repayment. However, the lender has informally requested
that the loan be repaid in full by October 6, 2008.

Included in  short-term  debt is an  unsecured  bank loan  repayable at $490 per
month plus interest  calculated at (Canadian)  prime plus 3% per annum (9.25% as
of August 31,  2007),  and is due  October 23,  2007.  At August 31,  2007,  the
principal due is $779.

These consolidated financial statements formerly included a non-interest bearing
loan to Island Scallops from Industry  Science and Technology  Canada  requiring
repayment  equal  to 0.5% of  Island  Scallops'  gross  scallop  sales  for each
preceding  year.  Per the  terms of the  loan,  if we were  unable  to  generate
sufficient revenues to repay the original amount of the loan by January 1, 2007,
the remaining  balance  would be forgiven.  As such,  the  remaining  balance of
approximately $159,000 was forgiven on January 1, 2007.

NOTE 8. LONG TERM DEBT

These  consolidated  financial  statements  include  a  Western  Diversification
Program  non-interest  bearing loan to Island  Scallops that requires  repayment
equal to 12% of gross  revenues from our scallop sales,  payable  semi-annually,
with no  specified  due date.  In September  2006,  we entered into a Settlement
Agreement  with the Minister of Western  Economic  Diversification  to amend the
repayment  terms  of our  non-interest  bearing  loan  of  $597,103  (to  Island
Scallops)  with the  Western  Diversification  Program.  We  agreed to repay the
$170,981  due as of August  31,  2006,  in  accordance  with a payment  schedule
beginning  with a payment of  $62,736  in  September  2006 and  continuing  with
monthly  payments of roughly  $9,840 until August 15, 2007.  The parties  agreed


                                      F-17
<PAGE>

that the  remaining  balance  of the  $426,122  shall be  repaid  via  quarterly
payments  equal to the  greater  of  $30,856  or 4% of the gross  scallop  sales
starting in the quarter  beginning on June 1, 2007 and each  quarter  thereafter
until the  balance  is  repaid.  Under the  terms of this  agreement,  the first
quarter  payment was due on September 30, 2007. At August 31, 2007,  the balance
due is $422,613,  of which $131,963 is reflected in the current  portion of long
term debt and the remaining balance of $290,650 is reflected as long term debt.

These  consolidated  financial  statements  include Island  Scallops'  unsecured
non-interest   bearing  loan  from  the  National  Research  Council  of  Canada
Industrial   Research  Assistance  Program  which  requires  quarterly  payments
commencing  March 1, 2003 equal to 3% of gross revenues of Island Scallops until
the earlier of full repayment or December 1, 2012. The amount repayable is up to
150% of the  original  advance of $418,212,  if repayment is before  December 1,
2007. If at December 1, 2012, Island Scallops has not earned sufficient revenues
to be required to repay the original loan amount,  the remaining  portion of the
loan is to be forgiven.  Amounts currently due at August 31, 2007, bear interest
at a rate of 1% per month. At August 31, 2007,  Island Scallops is in arrears in
respect  to the  payment  of these  amounts.  The  National  Council  of  Canada
Industrial Research Assistance Program has requested payment of the $87,869 that
they claim is owed  under  this loan  agreement.  As such,  at August 31,  2007,
$87,869  is  included  in  accounts  payable  and  accrued  liabilities  and the
remaining full principal balance of $330,343 is reflected in the current portion
of long term debt. We are seeking to renegotiate the repayment terms.

These consolidated  financial  statements include Island Scallop's mortgage loan
repayable at $2,062 per month (currently interest only) calculated at 10.5%. The
loan is secured by a second charge on the real property of Island  Scallops.  At
August 31, 2007, the principal due is $235,649.

NOTE 9.  SERIES B PREFERRED STOCK FINANCING

We completed a private equity  financing of $2,070,000 on January 16, 2007, with
two  accredited  investors.  Net proceeds  from the  offering are  approximately
$1,864,500.  We issued  207 shares of our Series B  Preferred  Stock,  par value
$0.001 per share and stated  value of $10,000 per share and each  investor  also
received  one of each of the  following  warrants:  (i) Series A  Warrant,  (ii)
Series B Warrant,  (iii) Series C Warrant,  (iv) Series J Warrant,  (v) Series D
Warrant,  (vi) Series E Warrant, and (vii) Series F Warrant,  each to purchase a
number of shares of common stock equal to fifty  percent  (50%) of the number of
shares of common stock  issuable upon  conversion of the  purchaser's  preferred
stock,  except for the Series J Warrants,  which shall  entitle the  investor to
purchase a number of shares of our common  stock  equal to one  hundred  percent
(100%) of the number of shares of common stock  issuable upon  conversion of the
purchaser's  preferred stock. Each of the Warrants has a term of 6 years, except
for the  Series  J  Warrants,  which  have a term of 1 year.  Each  share of the
preferred  stock is  convertible  into a number of fully paid and  nonassessable
shares of our common stock equal to the quotient of the  liquidation  preference
amount per share ($10,000) divided by the conversion  price,  which initially is
$1.15 per share, subject to certain  adjustments,  or approximately 8,696 shares
of common  for each share of  converted  preferred  stock.  We issued a total of
7,200,345 Warrants.

In connection  with this  financing,  we paid cash  compensation  to a placement
consultant  in the  amount of  $165,600  and  issued  him  placement  consultant
warrants,  exercisable  for a period of three years from the date of issue.  The


                                      F-18
<PAGE>

placement  consultant's  warrants  allow him to  purchase up to (i) 20 shares of
Series  B  Preferred  Stock,  and  each of the  following  warrants,  which  are
identical to the warrants issued to the investors of the financing: (i) Series A
Warrant,  (ii) Series B Warrant,  (iii) Series C Warrant, (iv) Series D Warrant,
(v) Series J Warrant, (vi) Series E Warrant, and (vii) Series F Warrant, each to
purchase 90,004 shares of common stock, except for the Series J Warrants,  which
shall entitle the  Consultant to purchase  180,008  shares of common stock.  The
placement consultant warrant is exercisable at a price of $1.15, for a period of
three years. The fees were recorded as a cost of capital.

The net proceeds from the January 16, 2007  financing are to be used for capital
expenditures  necessary  to expand our  operations  into clam farming in Morocco
(approximately  $1.0 million and any remaining  proceeds may be used for working
capital  and  general  corporate  purposes).  We are  currently  conducting  due
diligence on a North  African  based  aquaculture  company that farms  shellfish
products in Morocco and pending the successful  completion of such inquiry,  may
acquire  a  majority  ownership  interest  in the  company.  At the date of this
filing, we have not entered into any binding agreements for the purchase of such
company and may or may not do so depending  on the results of our due  diligence
investigation.

NOTE 10.  SERIES A PREFERRED STOCK WARRANT LIABILITIES

The warrants  that each  investor  received as a result of our April 12, May 30,
June 30 and July 11  Preferred  Stock  Financing  contained a cashless  exercise
provision  that becomes  effective one year after the original  issuance date of
such warrants if our registration  statement (that we are required to file under
the Series A  Preferred  Stock  Financing's  corresponding  registration  rights
agreement)  is not then in effect by the date such  registration  statement  was
required to be effective  pursuant to the  Registration  Rights Agreement of the
Preferred Stock Financing or not effective at any time during the  Effectiveness
Period (as defined in the Registration  Rights Agreement) in accordance with the
terms of the Registration  Rights Agreement.  As such and in accordance with the
accounting guidelines under SFAS No. 133, we valued the warrants as a derivative
financial  instrument and the  corresponding  liabilities  were entered onto our
consolidated balance sheet, measured at fair value. We determined the fair value
of the warrants as follows as of April 12, 2006, May 30, 2006, June 30, 2006 and
July 11, 2006 (the issuance dates).

We used the Black Scholes  option-pricing model with the following  assumptions:
an expected life equal to the  contractual  term of the warrants (one,  three or
five),  underlying  stock price of $1.10 (at April 12), $1.40 (at May 30), $1.35
(at June 30) and $1.40 (July 11) no dividends;  a risk free rate of 4.91%, 4.90%
and 4.91%,  which equals the one, three and five-year yield on Treasury bonds at
constant (or fixed)  maturity  (for those  warrants  issued on April 12), a risk
free rate of 4.99%,  which equals three and five-year yield on Treasury bonds at
constant (or fixed)  maturity (for those warrants issued on May 30), a risk free
rate of 4.71% and 4.70%,  which equals the three and five-year yield on Treasury
bonds at constant (or fixed) maturity (for those warrants issued on June 30) and
a risk free rate of 4.71% and 4.70%,  which equals the three and five-year yield
on Treasury bonds at constant (or fixed)  maturity (for those warrants issued on
July 11); and volatility of 93%. Under the assumptions, the Black-Scholes option
pricing  model  yielded an  aggregate  value of  approximately  $19,494,000.  We
performed the same  calculations  as of August 31, 2006, to revalue the warrants
as of that date. In using the Black  Scholes  option-pricing  model,  we used an
underlying  stock price of $1.40 per share;  no  dividends;  a risk free rate of
5.01%,  4.71% and 4.70%,  which  equals the one,  three and  five-year  yield on


                                      F-19
<PAGE>

Treasury  bonds at constant  (or fixed);  and  maturity  volatility  of 93%. The
resulting  aggregate  allocated  value of the  warrants  as of August  31,  2006
equaled  approximately  $22,160,000.  The change in fair value of  approximately
$2,666,000 was recorded for the period ended August 31, 2006.

We performed  the same  calculations  as of November  30,  2006,  to revalue the
warrants as of that date. In using the Black Scholes  option-pricing  model,  we
used an underlying  stock price of $1.50 per share;  no  dividends;  a risk free
rate of 4.94%,  4.52% and 4.45%, which equals the one, three and five-year yield
on Treasury bonds at constant (or fixed);  and maturity  volatility of 100%. The
resulting  aggregate  allocated  value of the  warrants as of November  30, 2006
equaled  approximately  $24,928,000.  The change in fair value of  approximately
$2,768,000 was recorded for the period ended November 30, 2006.

We  performed  the  same   calculations   as  of  February  21,  2007  (date  of
reclassification of warrant liability,  see Note 12 for additional information),
to  revalue  the  warrants  as  of  that  date.   In  using  the  Black  Scholes
option-pricing  model, we used an underlying  stock price of $1.15 per share; no
dividends;  a risk free rate of 5.05%,  4.74% and 4.68%,  which  equals the one,
three and five-year yield on Treasury bonds at constant (or fixed); and maturity
volatility of 96%. The resulting aggregate allocated value of the warrants as of
February 21, 2007, equaled approximately  $17,365,000.  The change in fair value
(gain) of  approximately  $7,563,000  was recorded for the period ended February
21, 2007.

Upon the earlier of the warrant  exercise or the  expiration  date,  the warrant
liability will be reclassified into shareholders'  equity.  Until that time, the
warrant  liability  will be  recorded  at fair  value  based on the  methodology
described above. Liquidated damages under the registration rights agreement will
be expensed as incurred and will be included in operating expenses.

NOTE 11.  SERIES B PREFERRED STOCK WARRANT LIABILITIES

The  warrants  that each  investor  received as a result of our January 16, 2007
Series B Preferred Stock Financing  contained a cashless exercise provision that
becomes  effective one year after the original issuance date of such warrants if
our  registration  statement  (that we are  required  to file under the Series B
Preferred Stock Financing's corresponding  registration rights agreement) is not
then in effect by the  required  date or not  effective  at any time  during the
Effectiveness Period (as defined in the Registration Rights Agreement).  As such
and in accordance with the accounting  guidelines  under SFAS No. 133, we valued
the  warrants  as  a  derivative  financial  instrument  and  the  corresponding
liabilities were entered onto our consolidated  balance sheet,  measured at fair
value. We determined the fair value of the warrants as follows as of January 16,
2007 (the issuance date):

We used the Black Scholes  option-pricing model with the following  assumptions:
an expected life equal to the  contractual  term of the warrants (one,  three or
six), underlying stock price of $1.40 (at January 16), no dividends; a risk free
rate of 5.06%,  4.79% and 4.74%,  which equals the one, three and six-year yield
on Treasury  bonds at constant (or fixed)  maturity and volatility of 93%. Under
the assumptions,  the  Black-Scholes  option-pricing  model yielded an aggregate
value of approximately $4,117,000.

We  performed   the  same   calculations   as  of  February  2,  2007  (date  of
reclassification of warrant liability,  see Note 12 for additional information),
to  revalue  the  warrants  as  of  that  date.   In  using  the  Black  Scholes
option-pricing  model, we used an underlying  stock price of $1.15 per share; no
dividends;  a risk free rate of 5.05%,  4.74% and 4.68%,  which  equals the one,


                                      F-20
<PAGE>

three and six-year yield on Treasury bonds at constant (or fixed);  and maturity
volatility of 96%. The resulting aggregate allocated value of the warrants as of
February 21, 2007, equaled  approximately  $3,085,000.  The change in fair value
(gain) of  approximately  $1,033,000  was recorded for the period ended February
21, 2007.

Upon the earlier of the warrant  exercise or the  expiration  date,  the warrant
liability will be reclassified into shareholders'  equity.  Until that time, the
warrant  liability  will be  recorded  at fair  value  based on the  methodology
described above. Liquidated damages under the registration rights agreement will
be expensed as incurred and will be included in operating expenses.

NOTE 12.  RECLASSIFICATION OF WARRANT LIABILITIES ASSOCIATED WITH SERIES A AND
SERIES B PREFERRED FINANCINGS

The warrants  that each  investor  received as a result of our April 12, May 30,
June 30 and July 11, 2006,  Series A Preferred  Stock  Financing and our January
16, 2007  Series B  Preferred  Stock  Financing  contained  a cashless  exercise
provision  that becomes  effective one year after the original  issuance date of
such warrants if our registration statements (that we are required to file under
the registration rights agreement for both financings) are not then in effect by
the date such  registration  statement was required to be effective  pursuant to
the each Registration  Rights Agreement of the Preferred Stock Financings or not
effective at any time during the Effectiveness Period (as defined in each of the
Registration  Rights  Agreements)  in  accordance  with the terms of each of the
Registration  Rights  Agreement.  As such and in accordance  with the accounting
guidelines  under  SFAS  No.  133 and  ETIF  Issue  No.  00-19  (Accounting  for
Derivative  Financial  Instruments  Indexed  to, and  Potentially  Settled in a,
Company's  Own Stock),  we  classified  the warrants as a liability  because the
cashless  exercise  provision  did not  specify  whether the  contract  could be
settled via the delivery of unregistered shares of our common stock. As such and
per the terms of  paragraph 14 of ETIF 00-19 (see  below),  we assumed  net-cash
settlement and the warrants were classified as a derivative financial instrument
and the  corresponding  liabilities were entered onto our  consolidated  balance
sheet,  measured at fair value.  We determined the fair value of the warrants as
follows as of April 12,  2006,  May 30, 2006,  June 30, 2006,  July 11, 2006 and
January 16, 2007 (the issuance  dates) and we preformed the same  calculation as
of May 31, August 31, November 30 and February 28 to revalue the warrants at the
end of each period (as  described  above in Notes 9 and 10).  The change in fair
value was then recorded for each period.

On February 21, 2007, the cashless exercise provision for all warrants issued in
conjunction  with both the Series A and Series B Preferred Stock  financings was
modified  to clarify  that any shares  issued in  connection  with the  cashless
exercise  will be  "restricted."  As a  result,  we  determined  that  (per  the
accounting  guidelines  under SFAS No. 133 and ETIF Issue No.  00-19) we are now
able to  net-share  settle the contract by delivery of  unregistered  shares and
that the warrant liability should be reclassified as permanent equity.

The initial fair value of the Series A warrant  liability  was  determined to be
approximately $19,494,000 (with a current portion of approximately  $1,225,000).
Since this value  exceeded  our  additional  paid in capital  ("APIC")  balance,
approximately  $9,021,000  of the  liability  was  allocated  to  APIC  and  the
remaining  $10,472,000 was allocated to retained deficit.  We made this decision
because the  changes in the fair value of the  warrants  are marked  through our
profit and loss.



                                      F-21
<PAGE>


The initial fair value of the Series B warrant  liability  was  determined to be
approximately  $4,117,000 (with a current portion of approximately  $1,058,000).
Since this value exceeded our additional paid in capital ("APIC"), approximately
$2,099,000 of the  liability was allocated to APIC and the remaining  $2,018,000
was allocated to retained deficit.  We made this decision because the changes in
the fair value of the warrants are marked through our profit and loss.

As described  above,  a portion of the fair value of the warrant  liability  was
allocated to APIC and the remaining  balance was allocated to retained  deficit.
Subsequent  changes in the fair  value of the  warrants  (at May 31,  August 28,
November 30, and February 21) were marked through our profit and loss. Since the
terms of the  cashless  provision  have been  clarified  and the  warrants  were
reclassified as equity, we reversed the liabilities and allocated  approximately
$20,450,000  to APIC  ($17,365,000  from the  Series A  financing  warrants  and
$3,085,000 from the Series B financing warrants).

NOTE 13.  CONTINGENT LIABILITIES

Our wholly owned subsidiary,  Island Scallops, entered into an agreement in 1998
with two parties,  under which  Island  Scallops was to produce and sell geoduck
seed to the two parties.  Island Scallops received advance payments from each of
the two  parties in the 2002 of  approximately  $64,140 and  recognized  related
revenue of $43,705 in respect to seed delivered in the 2002 year. The balance of
the deposits received (advance payments),  net of sales,  totaling $124,290,  is
included in accounts payable and accrued liabilities.

Management's  position  is that  the  two  parties  violated  the  terms  of the
agreement and we are  therefore  entitled to retain the balance of the deposits.
Per the terms of the original agreement, Island Scallops was entitled to make up
any shortfall in the product  produced in the following year.  Although  product
was available  and offered by Island  Scallops in the  following  year,  the two
parties  refused  to honor the terms of the  agreement  and would not accept the
product (to make up the shortfall) in the following year.

As of August 31, 2004,  one of the two parties made claims that Island  Scallops
owed it an amount  totaling  $88,925.  This  particular  party believed that the
agreement  required  Island  Scallops to deliver the product in year one and did
not allow Island Scallops to make up any shortfall with product  produced in the
following year. The balance included in accounts payable and accrued liabilities
related to this party is $36,332.

Any  additional  liability to us, or any reduction of the  currently  recognized
liability,  in  respect  to  these  deposits  will  be  recorded  at the  time a
conclusion to this matter can be determined.

Neither we nor our wholly  owned  subsidiary  maintain  insurance  covering  the
replacement of our inventory.  Consequently,  we are exposed to financial losses
or failure as a result of this risk.

NOTE 14.  INCOME TAXES

We did not  provide  any current or deferred  United  States  federal,  state or
foreign income tax provision or benefit for the period presented because we have
experienced operation losses since inception.  We have provided a full valuation


                                      F-22
<PAGE>

allowance on the deferred tax asset,  consisting primarily of unclaimed research
and development  expenditures,  because of uncertainty  regarding our ability to
realize the benefit.

Deferred  income  taxes  reflect  the net tax  effect of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the net deferred taxes at August 31, 2007 are as follows:

                                                                 August 31,
                                                                    2007
                                                             ---------------
       Deferred tax asset attributable to:
           Net operating loss carryover                      $     1,967,312
           Less, valuation allowance                              (1,967,312)
                                                             ---------------
       Total net deferred tax asset                          $             -
                                                             ===============

We follow  Statement of Financial  Accounting  Standards  Number 109 (SFAS 109),
"Accounting for Income Taxes." SFAS No. 109 requires a valuation  allowance,  if
any, to reduce the deferred  tax assets  reported if, based on the weight of the
evidence,  it is more likely than not that some  portion or all of the  deferred
tax assets will not be  realized.  Management  has  determined  that a valuation
allowance of approximately  $2,416,000 at August 31, 2007 is necessary to reduce
the  deferred  tax assets to the amount  that will more than  likely than not be
realized.  The change in valuation allowance for 2007 and 2006 was approximately
$1,083,000 and $439,000 respectively.

At August  31,  2007,  we had net  operating  loss  carryforwards  amounting  to
approximately $2,491,000 for U.S. and Canadian tax purposes,  respectively, that
expires in various  amounts  beginning  in 2009 and 2009 in the U.S. and Canada,
respectively.

The federal  statutory tax rate reconciled to the effective tax rate for 2006 is
as follows:

                                                          2007          2006
                                                       -----------  -----------
    Tax at U.S. statutory rate                               34.0%          34%
    State tax rate, net of federal benefits                   0.0          0.0
    Foreign tax rate in excess of U.S. statutory rate        17.6%        17.6%
    Change in valuation allowance                           (51.6%)      (51.6%)
                                                       -----------  -----------
    Effective tax rate                                        0.0%         0.0%
                                                       ===========  ===========


NOTE 15.  STOCK-COMPENSATION EXPENSE

On December 31, 2006, we issued  138,565  shares of common stock to the Series A
Convertible  Preferred  Stock holders.  The number of shares issued was based on
the  Dividend  Payment  at a  rate  of 8%  per  annum  (subject  to a  pro  rata
adjustment) of the Liquidation  Preference  Amount  ($1,416,000 for the April 12
financing,  $1,500,000  for the May 30  financing,  $1,550,000  for the  June 30
financing and $1,450,000  for the July 11 financing)  payable in shares equal to
90% of the quotient of (i) the Dividend  Payment  divided by (ii) the average of



                                      F-23
<PAGE>

the VWAP for the twenty (20) trading  days  immediately  preceding  the date the
Dividend  Payment is due, but in no event less than $0.65.  As such,  the shares
were  valued at  approximately  $234,000  and the total  aggregate  value of the
transaction was recorded as a preferred stock dividend.

In June 2007, our wholly owned subsidiary,  Island Scallops, Ltd. entered into a
Consulting  Agreement with Pacific Crab Co.,  pursuant to which ISL will issue a
total of 100,000  shares of our common  stock in  exchange  for  consulting  and
marketing  services Pacific will provide to ISL. Pursuant to the agreement,  ISL
issued  40,000 of such shares to Pacific  when the  Agreement  was  signed;  the
remaining  60,000  shares  will vest  ratably  (5,000  shares  per month) at the
beginning of each month for each month during the term of the  agreement,  which
initially is twelve months. ISL also agreed that if certain goals are met within
the agreed upon  timeframe,  it will issue 15,000 shares to Pacific at such time
as the goals  are  reached,  in which  case the  remaining  45,000  shares  will
continue to vest as described  above.  The 40,000  shares  issued were valued at
$1.55 per  share,  the  closing  bid of our  common  stock on the date of issue.
Therefore, total aggregate value of the transaction recognized by the company in
2007 was  $62,000.  Going  forward  the cost of these  shares will be expense at
current market price as they are issued.

On June 30, 2007, we issued  137,685  shares of common stock to the investors of
our April 12, May 30,  June 30 and July 11,  2006  financings  as payment of the
semi-annual  dividend  (8%  per  annum)  per the  terms  of the  Certificate  of
Designation of the Relative  Rights and  Preferences of the Series A Convertible
Preferred  Stock.  The number of shares issued was based on the dividend payment
at a rate of 8% per annum (subject to a pro rata  adjustment) of the Liquidation
Preference Amount ($1,416,000 for the April 12 financing, $1,500,000 for the May
30 financing,  $1,550,000  for the June 30 financing and $1,450,000 for the July
11 financing) payable in shares equal to 90% of the quotient of (i) the dividend
payment  divided  by (ii)  the  average  of the  VWAP  for the 20  trading  days
immediately preceding the date the dividend payment is due, but in no event less
than $0.65.  As such, the shares were valued at  approximately  $228,000 and the
total  aggregate  value of the  transaction  was  recorded as a preferred  stock
dividend.

On June 30, 2007,  we issued  33,589  shares of common stock to the investors of
our January 16, 2007  financing as payment of the  semi-annual  dividend (6% per
annum) per the terms of the  Certificate of  Designation of the Relative  Rights
and Preferences of the Series B Convertible Preferred Stock (see Note 9 - Series
B  Preferred  Shares  Financing  for  additional  information  on the  Series  B
Convertible  Preferred  Stock).  The  number of shares  issued  was based on the
dividend payment at a rate of 6% per annum (subject to a pro rata adjustment) of
the Liquidation Preference Amount ($1,416,000) payable in shares equal to 90% of
the quotient of (i) the dividend payment divided by (ii) the average of the VWAP
for the 20 trading days  immediately  preceding the date the dividend payment is
due,  but in no event  less than  $0.65.  As such,  the  shares  were  valued at
approximately  $56,000  and the total  aggregate  value of the  transaction  was
recorded as a preferred stock dividend.


Stock Options

In  August  2005,  our  Board  of  Directors   approved  the  "Edgewater   Foods
International  2005  Equity  Incentive  Plan." The Board of  Directors  reserved
5,000,000  shares of our  common  stock to be  issued  in the form of  incentive


                                      F-24
<PAGE>

and/or  non-qualified stock options for employees,  directors and consultants to
Edgewater.  As of August 31, 2006,  our Board of Directors  had  authorized  the
issuance of 282,000 options to employees.

In September  2006,  we engaged PR Global  Concept GBR to provide  international
investor  relations  services.  The initial  term of the  agreement  was for two
years. Pursuant to the consulting agreement, we were to pay PR Global $5,000 per
month for the term of the agreement. As additional  compensation,  we originally
agreed to issue a total of 500,000  options  to  purchase  our  common  stock in
quarter  installments,  the first 125,000 of which was to vest  immediately upon
signing of the  agreement  and the remainder of which was to vest in three equal
amounts  of 125,000  after 3 months,  12 months  and the final  installment,  15
months after the date of signing;  the options are  exercisable at strike prices
ranging from $1.40 to $2.25.  The options were to be exercisable for a period of
three years from the date of the vesting.

In December  2006,  we entered  into an Amended and Restated  Agreement  with PR
Global Concept GBR. Under the terms of the amended agreement, PR Global was only
eligible to receive a total of 350,000  (as  opposed to 500,000 in the  original
agreement)  options to purchase our common stock in the following  installments:
25,000  options  every 3 months  after the date of the Amended  Agreement  for a
total of four  installments;  one  installment of 125,000 options 18 months from
the date of the Amended  Agreement;  and, one  installment of 125,000 options 24
months from the date of the Amended  Agreement.  The options issued in the first
four installments were to be exercisable at a strike price of $1.52 and the last
two installments  were to be exercisable at a strike price of $2.25. The options
were to be exercisable for a period of three years from the date of the vesting.
Additionally,  PR Global would no longer receive the $5,000 monthly payment;  we
did, however,  pay the one month owed to PR Global under the original  agreement
when the Amended  Agreement  was signed.  The Amended  Agreement  was  otherwise
unchanged from the originally  entered into agreement with PR Global. On January
12, 2007,  however,  we terminated  our Amended and Restated  Agreement  with PR
Global and ended our  relationship  with the firm.  As such,  we  rescinded  the
350,000 options that were to be issued under the amended agreement and PR Global
is to receive no additional compensation.

On February 1, 2007, we issued  Kitsilano  Capital Corp. four 100,000 options to
purchase our common stock,  pursuant to our Consulting  Agreement with them. The
first  option vests on May 1, 2007,  the second on August 1, 2007,  the third on
February 1, 2008, and the fourth on June 1, 2008, so long as Kitsilano continues
to  provide  services  to us under  the  Consulting  Agreement.  Each  option is
exercisable  for a  period  of three  years  from  the  vesting  date and has an
exercise  price of  $1.20,  $1.40,  $1.60  and $1.80  respectively.  The  shares
underlying the options have piggy-back  registration  rights that required us to
register  the shares in our last  registration  statement.  The  options and the
shares  underlying  were  issued  in  accordance  with  the  exemption  from the
registration  provisions of the Securities Act of 1933, as amended,  provided by
Section 4(2) of such Act for issuances not  involving  any public  offering.  To
date, we have incurred stock option expense of  approximately  $267,000 and will
incur an approximately  an additional  $84,000 through May 31, 2008. We used the
Black Scholes option-pricing model with the following  assumptions:  an expected
life  equal  to the  contractual  term  of the  options  (one,  three  or  six),
underlying  stock price of $1.30 per share,  no  dividends;  a risk free rate of
4.88%,  which  equals the one,  three and  six-year  yield on Treasury  bonds at
constant (or fixed) maturity and volatility of 100%.


                                      F-25
<PAGE>


On April 18,  2007,  our board of directors  authorized  the issuance of 190,000
options to purchase our common stock to 29 employees,  directors and consultants
pursuant to the "Edgewater Foods  International 2005 Equity Incentive Plan." The
options vest on April 18, 2008.  Each option is exercisable for a period of five
years from the vesting date and has an exercise price of $1.25 respectively.  To
date, we have incurred  stock option expense of  approximately  $76,000 and will
incur an approximately an additional  $105,000 through May 31, 2008. We used the
Black Scholes option-pricing model with the following  assumptions:  an expected
life  equal  to the  contractual  term  of the  options  (one,  three  or  six),
underlying  stock price of $1.25 per share,  no  dividends;  a risk free rate of
4.65%,  which  equals the one,  three and  six-year  yield on Treasury  bonds at
constant (or fixed) maturity and volatility of 100%.

In August  17,  2007,  our board of  directors  authorized  the  issuance  of an
aggregate  of  2,090,000  options  to  purchase  our  common  stock to 19 of our
directors,   employees  and  consultants   pursuant  to  the  "Edgewater   Foods
International  2005 Equity Incentive Plan." The options vest on August 17, 2008.
Each option is exercisable  for a period of five years from the vesting date and
has an exercise  price of $1.21  respectively.  To date, we have incurred  stock
option  expense of  approximately  $144,000 and will incur an  approximately  an
additional  $1,582,000  through  August  31,  2008.  We used the  Black  Scholes
option-pricing model with the following  assumptions:  an expected life equal to
the contractual term of the options (one, three or six),  underlying stock price
of $1.10 per share,  no dividends;  a risk free rate of 4.55%,  which equals the
one, three and six-year yield on Treasury bonds at constant (or fixed)  maturity
and volatility of 100%.

Stock option activity during the period ending August 31, 2007 was as follows:

                                                              Weighted Average
                                              Number of        Exercise Price
                                               Shares
                                            ----------------------------------
Outstanding, August 31, 2005                     282,000      $          1.50
    Granted                                           --                   --
    Exercised                                         --                   --
    Forfeited                                         --                   --
    Expired                                           --                   --
                                            ----------------------------------
Outstanding, August 31, 2006                     282,000                 1.50
    Granted                                    2,680,000                 1.25
    Exercised                                         --                   --
    Forfeited                                         --                   --
    Expired                                           --                   --
                                            ----------------------------------
Outstanding, August 31, 2007                   2,962,000      $          1.26
                                            ==================================
Exercisable, August 31, 2007                     482,000      $          1.42
                                            ==================================



                                      F-26
<PAGE>

At August 31,  2007,  200,000  of the  exercisable  options  expire in May 2010,
62,000 of the  exercisable  options  expire in  August  2010 with the  remaining
balance of 220,000 having an expiration  date of August 2015.  Warrant  activity
during the period ending August 31, 2007 was as follows:

                                                               Weighted Average
                                               Number of        Exercise Price
                                               Warrants
                                            ----------------------------------
Outstanding, August 31, 2005                            --                  --
    Granted                                     22,207,487     $          1.52
    Exercised                                           --                  --
    Forfeited                                           --                  --
    Expired                                             --                  --
                                            ----------------------------------
Outstanding, August 31, 2006                    22,207,487                1.52
    Granted                                      8,144,365                1.87
    Exercised                                    2,265,600                0.56
    Forfeited                                           --                  --
    Expired                                             --                  --
                                            ----------------------------------
Outstanding, August 31, 2007                    28,086,252     $          1.75
                                            ==================================
Exercisable, August 31, 2007                    28,086,252     $          1.75
                                            ==================================

NOTE 16.  SERIES A PREFERRED STOCK CONVERSION AND WARRANT EXERCISE

On November 7, 2006, a holder of our series A preferred  stock  exercised  their
right to convert 66,666 shares of our series A preferred stock into 66,666 share
of common  stock.  As such, we issued 66,666 shares of common stock and canceled
66,666 shares of our series A.

On May 8, 2007, a holder of our series A preferred  stock  exercised their right
to convert  30,000 shares of our series A preferred  stock into 30,000 shares of
common  stock.  As such,  we issued  30,000  shares of common stock and canceled
30,000 shares of our series A.

On May 10, 2007, a holder of our series A preferred  stock exercised their right
to convert 500,000 shares of our series A preferred stock into 500,000 shares of
common  stock.  As such, we issued  500,000  shares of common stock and canceled
500,000 shares of our series A.

On May 12, 2007, a holder of our series A preferred  stock exercised their right
to convert  70,800 shares of our series A preferred  stock into 70,800 shares of
common  stock.  As such,  we issued  70,800  shares of common stock and canceled
70,800 shares of our series A.


                                      F-27
<PAGE>


On April 12, 2007, we issued  1,354,667  shares of common stock to the investors
of our April 12, 2006  financing  in  connection  with the exercise of 1,354,667
Series J warrants received by investor as part of the financing.  We also issued
188,800  series A  preferred  shares and 188,800  shares of common  stock to the
placement  consultant from the April 12, 2006 financing in conjunction  with the
exercise of 188,880  placement agent warrants and 188,800 series J warrants.  We
received  net  proceeds of  approximately  $913,000  pursuant to the exercise of
these warrants.

On August 20, 2007,  a holder of our series A preferred  stock  exercised  their
right to convert  65,335  shares of our  series A  preferred  stock into  65,335
shares of common  stock.  As such,  we issued  65,335 shares of common stock and
canceled 65,335 shares of our series A.

On August 31, 2007,  a holder of our series A preferred  stock  rescinded  their
right to  converting  of  430,000  shares of our series A  preferred  stock into
430,000 shares of common stock.  As such, we issued 500,000 shares of our series
A and canceled 430,000 shares of our common stock.

NOTE 17.  COMMITMENTS AND CONTINGENCIES

Corporate Offices

For the fiscal year ended August 31, 2007, our U.S. corporate office was located
at 400 Professional Drive, Suite 310,  Gaithersburg,  Maryland 20878. This space
was provided on a rent free basis by one of our shareholders.  As a result,  the
Company did not recognize rental expense in the fiscal year.

Employment Agreements

We entered into an employment agreement with Mr. Robert Saunders as our Chairman
and  President  effective on June 29,  2005.  Subsequently  in August 2005,  Mr.
Saunders was appointed CEO by our Board of Directors. Mr. Saunders will serve at
the pleasure of the Board of Director's. For serving as President, Mr. Saunders'
compensation will be US $60,000 per annum. Additionally,  we agreed to grant Mr.
Saunders  a signing  bonus of US  $150,000  to be paid on closing of at least US
$3,500,000 in third party  financing and increase his  compensation  to $120,000
per annum if we receive at least US  $5,000,000  in outside  funding.  After the
completion  of our Preferred  Stock  Financing  (see Note 13 - Preferred  Shares
Financing  for  additional  information  on the Series A  Convertible  Preferred
Stock),  Mr. Saunders was due the signing bonus of $150,000 and a monthly salary
of $10,000 per month beginning in August 2006.  However,  Mr. Saunders agreed to
reduce his  monthly  salary to $5,000  per month  until such time that we become
significantly  cash flow positive for its  operations.  As of August 31, 2007 we
had paid Mr. Saunders $75,000 of the $150,000 bonus that was due under the terms
of  the  agreement.   Additionally,   we  are  currently   discussing   possible
restructuring/payment  terms of the accrued  salary of $130,000 as of August 31,
2007 until such time that we become  significantly  cash flow  positive  for its
operations.

Marketing Consulting Agreements


                                      F-28
<PAGE>


In June 2007, our wholly owned subsidiary, Island Scallops, Ltd. ("ISL") entered
into a Consulting  Agreement with Pacific Crab Co. (the "consultant') to develop
new markets and  facilitate  the sale and  distribution  of ISL's  products.  As
compensation  for  the  consultant's  marketing  services,  ISL  shall  pay  the
consultant  $12,500  per month  for the next  twelve  months.  In  addition  and
pursuant  to the  terms of the  agreement,  the  Company  will  issue a total of
100,000  shares of our common stock (under an agreed upon  schedule) in exchange
for  consulting  and  marketing  services  Pacific  will  provide  to ISL.  (for
additional  information  on  the  distribution  schedule  see  Note  15 -  Stock
Compensation Expense).

NOTE 18.  SUBSEQUENT EVENTS (UNAUDITED)

On October 31, we issued  25,000  shares of common stock to Pacific Crab Seafood
Company,  Inc. as part of the 100,000  shares of our common stock that our Board
of Directors  previously approved for the consulting and marketing services that
they will  provide to us. The  remaining  35,000  shares will be issued in equal
monthly installments of 5,000 shares during the remaining term of the agreement.
The shares were issued in accordance  with the exemption  from the  registration
provisions of the Securities  Act of 1933, as amended,  provided by Section 4(2)
of such Act for issuances not involving any public offering.

We completed a private  equity  financing of $897,444 on November 5, 2007,  with
one  accredited  investor.  Net proceeds  from the  offering  are  approximately
$801,000. As part of this financing, the investor returned the Series J Warrant,
Series D Warrant,  Series E Warrant and Series F Warrant that they received as a
result of our Series B financing  completed on January 16, 2007. Pursuant to the
current financing, we issued 747,870 shares of our Series C Preferred Stock, par
value  $0.001  per  share  and the  investor  also  received  one of each of the
following warrants:  (i) Series A Warrant, (ii) Series B Warrant, (iii) Series C
Warrant, (iv) Series J Warrant, (v) Series D Warrant, (vi) Series E Warrant, and
(vii)  Series F Warrant,  each to  purchase  a number of shares of common  stock
equal to fifty  percent  (50%) of the number of shares of common stock  issuable
upon  conversion of the  purchaser's  preferred  stock,  except for the Series J
Warrants, which shall entitle the investor to purchase a number of shares of our
Series C Preferred  Stock equal to one hundred  percent  (100%) of the number of
Series C Preferred Stock it received in the financing.  Each of the Warrants has
a term of 5 years,  except  for the  Series J  Warrants,  which have a term of 1
year. Each share of the preferred  stock is convertible  into one fully paid and
nonassessable share of our common stock at an initial conversion price of $1.20,
subject to adjustment.  We are obligated to file a registration  statement on or
before  December 5, 2007  providing for the resale of the shares of common stock
issuable upon  conversion of the preferred  stock and the shares of common stock
underlying  the  Warrants and  underlying  the  preferred  stock  issuable  upon
exercise of the  Warrants.  In connection  with the  financing,  our  management
agreed not to sell any of our  securities  owned by them,  their  affiliates  or
anyone  they have  influence  over  until the  registration  statement  has been
effective for six months.

In connection  with this  financing,  we paid cash  compensation  to a placement
consultant  in the amount of  approximately  $72,000  and  issued him  placement
consultant  warrants,  exercisable  for a period of three years from the date of
issue.  The  placement  consultant's  warrants  allow him to  purchase up to (i)
74,787 shares of Series C Preferred Stock,  and each of the following  warrants,
which are identical to the warrants  issued to the  investors of the  financing:
(i) Series A Warrant, (ii) Series B Warrant, (iii) Series C Warrant, (iv) Series



                                      F-29
<PAGE>

D Warrant,  (v)  Series J Warrant,  (vi)  Series E Warrant,  and (vii)  Series F
Warrant, each to purchase 37,393 shares of common stock, except for the Series J
Warrants,  which shall entitle the  Consultant to purchase  74,787 shares of our
Series C Preferred Stock.

The net  proceeds  from the  financing  are to be used for  working  capital and
general corporate purposes.

NOTE 19.  GOING CONCERN

Prior to the completion of our Preferred  Stock  Financing,  working capital had
been primarily  financed with various forms of debt. We have suffered  operating
losses  since  inception  in our efforts to  establish  and execute our business
strategy.  As of  August  31,  2007,  we had a  cash  balance  of  approximately
$1,657,000. Although management believes that we have adequate funds to maintain
our  business  operations  into the next fiscal year and/or until we become cash
flow  positive,  we  continued to suffer  operational  losses in our 2007 fiscal
year.  Until our operations are able to demonstrate  and maintain  positive cash
flows, we may require  additional working capital to fund our ongoing operations
and execute our business  strategy of expanding our  operations.  Based on these
factors,  there is  substantial  doubt  about our ability to continue as a going
concern.

The  financial  statements  do  not  include  any  adjustments  relating  to the
recoverability  and classification of liabilities that might be necessary should
we be unable to continue as a going concern.  Our ability to continue as a going
concern is dependent upon our ability to generate  sufficient cash flows to meet
our  obligations on a timely basis and ultimately to attain  profitability.  Our
management  intends to obtain  working  capital  through  operations and to seek
additional funding through debt and equity offerings to help fund our operations
as we expand. There is no assurance that we will be successful in our efforts to
raise additional working capital or achieve profitable operations. The financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

NOTE 20.  FOREIGN OPERATIONS

The  Company's  share of net  assets  held  outside  the United  States  totaled
approximately $5,007,000 at August 31, 2007.












                                      F-30
<PAGE>






ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND
         FINANCIAL DISCLOSURE

We have had no disagreements  with our certified public accountants with respect
to accounting practices or procedures or financial disclosure.


ITEM 8A. CONTROLS AND PROCEDURES

QUARTERLY EVALUATION OF CONTROLS

As of the end of the period  covered by this annual  report on Form 10-KSB,  the
Company  evaluated  the  effectiveness  of the design and operation of (i) their
disclosure  controls  and  procedures,  and (ii)  their  internal  control  over
financial reporting. The evaluators who performed this evaluation were our Chief
Executive Officer, Robert Saunders and Acting Chief Accounting Officer,  Michael
Boswell;  their  conclusions,  based on and as of the date of the Evaluation (i)
with  respect to the  effectiveness  of our  Disclosure  Controls  and (ii) with
respect to any change in our Internal  Controls  that  occurred  during the most
recent fiscal quarter that has materially  affected,  or is reasonably likely to
materially affect our Internal Controls are presented below.

CEO AND CFO CERTIFICATIONS

Attached  to this  annual  report,  as  Exhibits  31.1  and  31.2,  are  certain
certifications  of the CEO and Acting CAO, which are required in accordance with
the Exchange Act and the Commission's rules implementing such section (the "Rule
13a-14(a)/15d-14(a) Certifications"). This section of the annual report contains
the   information   concerning   the   Evaluation   referred   to  in  the  Rule
13a-14(a)/15d-14(a)   Certifications.   This  information   should  be  read  in
conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete
understanding of the topic presented.

DISCLOSURE CONTROLS AND INTERNAL CONTROLS

Disclosure  Controls are procedures designed with the objective of ensuring that
information  required to be disclosed in the  Company's  reports  filed with the
Securities and Exchange  Commission  under the Securities  Exchange Act, such as
this annual report, is recorded,  processed,  summarized and reported within the
time period specified in the Commission's rules and forms.  Disclosure  Controls
are also  designed  with the  objective of ensuring  that  material  information
relating  to the  Company is made known to the CEO and the Acting CAO by others,
particularly during the period in which the applicable report is being prepared.
Internal Controls, on the other hand, are procedures which are designed with the
objective of providing reasonable assurance that (i) the Company's  transactions
are properly  authorized,  (ii) the  Company's  assets are  safeguarded  against
unauthorized or improper use, and (iii) the Company's  transactions are properly
recorded and reported,  all to permit the  preparation  of complete and accurate
financial statements in conformity with accounting principals generally accepted
in the United States.


                                       41
<PAGE>



LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS

The Company's management does not expect that their Disclosure Controls or their
Internal  Controls will prevent all error and all fraud.  A control  system,  no
matter how well  developed and operated,  can provide only  reasonable,  but not
absolute  assurance that the objectives of the control system are met.  Further,
the design of the control  system must  reflect the fact that there are resource
constraints,  and the benefits of controls must be considered  relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud,  if any,  within  the  Company  have  been  detected.  These  inherent
limitations  include the  realities  that  judgments in  decision-making  can be
faulty  and that  breakdowns  can  occur  because  of simple  error or  mistake.
Additionally,  controls  can be  circumvented  by the  individual  acts  of some
persons,  by collusion of two or more people,  or by management  override of the
control.  The design of a system of controls  also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design  will  succeed in  achieving  its  stated  objectives  under all
potential future conditions. Over time, control may become inadequate because of
changes in conditions,  or because the degree of compliance with the policies or
procedures  may   deteriorate.   Because  of  the  inherent   limitations  in  a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.

SCOPE OF THE EVALUATION

The CEO and Acting CAO's evaluation of the our Disclosure  Controls and Internal
Controls included a review of the controls' (i) objectives,  (ii) design,  (iii)
implementation, and (iv) the effect of the controls on the information generated
for use in this  annual  report.  In the course of the  Evaluation,  the CEO and
Acting CAO sought to identify data errors, control problems,  acts of fraud, and
they sought to confirm that appropriate  corrective  action,  including  process
improvements,  was  being  undertaken.  This  type  of  evaluation  is done on a
quarterly  basis so that the  conclusions  concerning the  effectiveness  of our
controls  can be  reported  in our  quarterly  reports on Form 10-QSB and annual
reports on Form 10-KSB. The overall goals of these various evaluation activities
are to monitor  our  Disclosure  Controls  and  Internal  Controls,  and to make
modifications  if and as necessary.  Our external  auditors also review Internal
Controls in  connection  with their audit and review  activities.  Our intent in
this regard is that the  Disclosure  Controls and the Internal  Controls will be
maintained  as  dynamic  systems  that  change   (including   improvements   and
corrections) as conditions warrant.

Among other  matters,  the  Evaluation  was to determine  whether there were any
significant  deficiencies or material weaknesses in our Internal Controls, which
are  reasonably  likely to  adversely  affect our  ability  to record,  process,
summarize and report financial information, or whether the Evaluators identified
any acts of  fraud,  whether  or not  material,  involving  management  or other
employees who have a significant role in our Internal Controls. This information
was  important  for  both  the  Evaluation,  generally,  and  because  the  Rule
13a-14(a)/15d-14(a)  Certifications, Item 5, require that the CEO and Acting CAO
disclose that  information to our Board (audit  committee),  and our independent
auditors, and to report on related matters in this section of the annual report.
In the professional auditing literature, "significant deficiencies" are referred
to as  "reportable  conditions".  These  are  control  issues  that  could  have
significant  adverse  affect on the ability to record,  process,  summarize  and



                                       42
<PAGE>

report  financial  data in the financial  statements.  A "material  weakness" is
defined  in  the  auditing  literature  as  a  particularly  serious  reportable
condition where the internal control does not reduce, to a relatively low level,
the risk that  misstatement  cause by error or fraud may occur in  amounts  that
would be material in relation to the  financial  statements  and not be detected
within a timely  period by employee  in the normal  course of  performing  their
assigned  functions.  The  Evaluators  also  sought to deal with other  controls
matters in the Evaluation,  and in each case, if a problem was identified,  they
considered what revisions, improvements and/or corrections to make in accordance
with our ongoing procedures.

CONCLUSIONS

Based upon the Evaluation,  our disclosure  controls and procedures are designed
to provide reasonable assurance of achieving our objectives.  Our CEO and Acting
CAO concluded that our disclosure  controls and procedures are effective at that
reasonable assurance level to ensure that material information relating to us is
made known to management,  including the CEO and Acting CFO, particularly during
the period when our periodic  reports are being prepared,  and that our Internal
Controls are effective at that assurance level to provide  reasonable  assurance
that our financial statements are fairly presented  inconformity with accounting
principals generally accepted in the United States. Additionally, there has been
no change in our Internal  Controls that occurred  during our most recent fiscal
quarter that has materially  affected,  or is reasonably  likely to affect,  our
Internal Controls.

                                    PART III.

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  following  table and text set forth the names and ages of all directors and
executive  officers as of November 23, 2006. The Board of Directors is comprised
of only one class. All of the directors will serve until the next annual meeting
of shareholders, which is anticipated to be held in January or February of 2007,
and until their  successors  are elected and  qualified,  or until their earlier
death,  retirement,  resignation  or removal.  Dr.  Kristina  Miller,  our Chief
Scientific  Advisor  is the  wife of  Robert  Saunders,  our  Chairman,  CEO and
President;  otherwise, there are no family relationships among our directors and
executive officers.  Also provided herein are brief descriptions of the business
experience of each director,  executive officer and advisor during the past five
years  and an  indication  of  directorships  held by  each  director  in  other
companies  subject to the reporting  requirements  under the Federal  securities
laws.


NAME                            AGE              POSITION
----                            ---              --------
Robert Saunders                  54            Chairman, CEO and President
Douglas C. MacLellan             51            Vice Chairman
Mark H. Elenowitz                37            Director
Robert L. Rooks                  52            Director
Ian Fraser                       48            Director
Michael Boswell                  38            Director, Acting Chief Accounting
                                               Officer
Darryl Horton                    57            Director
Victor Bolton                    53            Director




                                       43
<PAGE>


ROBERT  SAUNDERS,  CHAIRMAN,  CEO AND PRESIDENT.  Mr.  Saunders has directed all
research and  development  efforts at Island  Scallops since its  establishment.
After studying for his B.Sc. at the University of British  Columbia in the early
1970's,  Mr.  Saunders has worked  exclusively in the  aquaculture  research and
development   field.   His  efforts  have  primarily   involved   designing  and
implementing  innovative  culture  technology  and methods  for new  aquaculture
species in British  Columbia.  Mr. Saunders has direct  experience with managing
projects  similar  to  the  type  proposed,  such  as  developing  the  hatchery
technology for producing the Japanese  scallop and the  development of sablefish
aquaculture.

DOUGLAS C.  MACLELLAN,  VICE-CHAIRMAN.  Since May 1992,  Mr.  MacLellan has been
President and Chief Executive Officer of the MacLellan Group,  Inc., a privately
held business  incubator and financial advisory firm. Mr. MacLellan is currently
a member of the board of directors and chairman of the audit  committee of AMDL,
Inc. (AMEX: ADL), a publicly held biotechnology  firm. From 2002 until September
2005, Mr. MacLellan was Vice Chairman and a Director of AXM Pharma,  Inc. (AMEX;
AXJ). From March 1998 through October 2000, Mr. MacLellan was the co-founder and
a  significant  shareholder  of  Wireless  Electronique,   Ltd.,  a  China-based
telecommunications  company  having joint venture  operations  with China Unicom
(NASDAQ:  CHU) in Yunnan,  Inner  Mongolia and Ningxia  provinces.  He is also a
co-founder  and, since May 1997, has been a director of Datalex  Corporation,  a
Canadian-based  legacy software solution  provider.  From November 1996 to March
1998, Mr.  MacLellan was co-Chairman and an Investment  Committee  member of the
Strategic  East European Fund.  From November 1995 to March 1998, Mr.  MacLellan
was  President,  Chief  Executive  Officer and a Director of PortaCom  Wireless,
Inc.,  a company  engaged as a developer  and  operator of cellular and wireless
telecommunications  ventures in selected developing world markets. Mr. MacLellan
is a former  member  of the  board  of  directors  and  co-founder  of  FirstCom
Corporation  (NASDAQ:  FCLX), an international  telecommunications  company that
operates a  competitive  access fiber and  satellite  network in Latin  America,
which became AT&T Latin America (NASDAQ:  ATTL) in August 2000.  During 1996, he
was also the Vice-Chairman of Asia American  Telecommunications  (now Metromedia
China  Corporation),  a  majority-owned  subsidiary of Metromedia  International
Group,  Inc.  (AMEX:  MMG).  Mr.  MacLellan  was educated at the  University  of
Southern  California  in  economics  and  finance,  with  advanced  training  in
classical economic theory.

MARK H. ELENOWITZ, DIRECTOR. Mr. Elenowitz is a co-founder and managing director
of TriPoint Capital Advisors,  LLC. Mr. Elenowitz is responsible for the overall
corporate  development of the firm and assisting  their clients with  high-level
financial  services and general business  development.  In this role he provides
high level advice regarding  corporate  finance,  corporate  structure,  SOX 404
compliance,  employee  option programs and capital market  navigation  including
providing advice as a member of the board of directors. Mr. Elenowitz integrates
a  strong,  successful   entrepreneurial  background  with  extensive  financial
services and capital markets experience.  Mr. Elenowitz has assisted in numerous
companies  in a  "soup-to-nuts"  process of  preparing  a company for the public
markets,  bringing  them public and advising on an ongoing basis via board seats
and  executive  positions  to oversee  further  rounds of  financing,  strategic
acquisitions and a broader investor market via a listing on "higher"  securities
exchange or market.  Mr. Elenowitz is also currently a director of Global Growth
Acquisition  Corp.  1, a  Cayman  Islands  corporation.  From  December  2002 to
September  2005, Mr.  Elenowitz was a board member of AXM Pharma formerly (AMEX:
AXJ) He was  also  the  senior  managing  director  of  Investor  Communications
Company,  LLC (ICC),  a  national  investor  relations  firm he founded in 1996.
Through  ICC, Mr.  Elenowitz  has  developed  ongoing  relationships  with other
investment banking firms, market makers, and analysts.  Mr. Elenowitz has worked


                                       44
<PAGE>

with over 50 publicly traded companies  providing the above mentioned  financial
consulting and strategic planning  services.  Mr. Elenowitz holds the Series 24,
82 and 63 licenses  and is also CEO of TriPoint  Global  Equities,  LLC, a FINRA
member firm. Mr.  Elenowitz is the recipient of several  entrepreneurial  awards
and has been  profiled  in  BusinessWeek  and  CNBC,  as well as  several  other
publications.  He is a graduate of the University of Maryland School of Business
and  Management,  with a Bachelor  of Science in Finance.

DR.  ROBERT L. ROOKS,  DIRECTOR.  Dr. Robert L. Rooks has been Chief of Staff of
All Care Animal Referral Center (ACARC) in Fountain  Valley,  California,  since
1990. ACARC is the largest  strictly  referral  veterinary  center in the United
States.  Dr. Rooks has a staff of over 20 veterinarians in the areas of surgery,
critical care, internal medicine, oncology, dentistry,  radiology and neurology.
Their services  include  24-hour  critical  care/emergency  service,  MRI and CT
scans,  color-flow  Doppler  ultrasounds,  hyperbaric oxygen therapy, a complete
orthopedic  program  including total hip replacements and joint  reconstruction,
cobalt  radiation  therapy,  a  complete   neuro-diagnostic  service,  a  kidney
transplant program and a physical rehabilitation department and much more. He is
the published author of over 100 journals,  magazine and newspaper articles. Dr.
Rooks is also the author of the book "Canine  Orthopedics"  published in 1997 by
Howell Bookhouse.  Dr. Rooks completed his  undergraduate  studies at Iowa State
University in 1978. He graduated from the College of Veterinary Medicine at Iowa
State.  Dr. Rooks  received his Masters Degree as well as completed his surgical
residency at the  University  of Illinois in 1981.  He is a Diplomat of both the
American  College of Veterinary  Surgeons and the American College of Veterinary
Practitioner.

IAN FRASER,  DIRECTOR.  Since 1997,  Mr. Ian Fraser has been President of Fraser
Yacht Sales Ltd., a successful Yacht Brokerage located in Vancouver,  B.C. Prior
to establishing  Fraser Yacht Sales Ltd., Mr. Fraser gained  experience in sales
and marketing both nationally and  internationally as a yacht broker for two top
brokerage  houses  in  Vancouver.  Previously,  Mr.  Fraser  was  worked  as  an
advertising  sales  executive with Naylor  communications  from 1988 to 1990 and
learned  valuable  communication  skills  while  working  with  numerous  trades
including the Truck  Logger's  association,  the I.W.A of America,  and the B.C.
Construction  industry.  He also operated as a commercial  fisherman on the West
coast working on commercial salmon fishing boats for the B.C. Packer Corporation
over a 4 year period and gained valuable knowledge of the coastline of Vancouver
Island and along the mainland from Victoria to the Queen Charlotte Islands.  Mr.
Fraser also acquired sea time and  commercial  shipping  skills while working on
the deck  department of the B.C.  Ferry  Corporation  based out of Horseshoe Bay
during  his early  professional  career  and  during  the  summer  months  while
attending school in the early 1980s. Mr. Fraser also competes internationally on
ocean racing yachts and has crossed the Pacific and sailed up and down the coast
to Mexico on numerous  occasions  while racing and  delivering  racing yachts as
captain.  Mr. Fraser studied Business  Administration at Simon Fraser University
and Capilano College graduating with a diploma in Business Administration.


                                       45
<PAGE>


MICHAEL BOSWELL,  DIRECTOR AND ACTING CHIEF ACCOUNTING OFFICER. Mr. Boswell is a
co-founder and member in TriPoint  Capital  Advisors,  LLC, a boutique  merchant
bank focused on small and  mid-sized  growth  companies  and a co founder of the
TriPoint family of companies. Mr. Boswell provides high-level financial services
to start-up  businesses  and small to mid-sized  companies.  Mr. Boswell is also
currently a director of Global  Growth  Acquisition  Corp.  1, a Cayman  Islands
corporation.  Mr.  Boswell  holds the Series 24, 82 and 63 licenses  and is also
Managing Director and Chief Compliance Officer of TriPoint Global Equities, LLC,
a FINRA member firm. Prior to the founding of TriPoint, Mr. Boswell had a number
of  executive   positions  focusing  on  business   development  and  management
consulting. Mr. Boswell also spent eight years as a senior analyst and/or senior
engineer for various branches of the United States  Government.  He earned a MBA
from John Hopkins  University  and a BS degree in  Mechanical  Engineering  from
University of Maryland.

DARRYL HORTON, DIRECTOR. Mr. Horton has been a businessman successfully involved
in numerous  construction and development  projects for the past 35 years. He is
the President,  Manager and a Partner of Abbotsford Development  Corporation and
is currently  managing a development  project in  Abbotsford,  British  Columbia
called Eagle Mountain. Eagle Mountain is an upscale, master planned community of
single family homes, town homes and commercial properties covering approximately
60 acres  that is  expected  to be  valued,  upon  completion,  in excess of 200
million dollars. Prior to Eagle Mountain, Mr. Horton managed, owned and marketed
numerous other residential and commercial projects including the construction of
a 30 million dollar  multi-function  residential  Intermediate  Care Facility in
LaJolla  California.  For  15  years  Mr.  Horton  was a  partner  in a  general
contracting  company that did various  contracts with an average volume of about
25  million  per year.  In the  1970's,  Mr.  Horton was the Vice  president  of
Community Builders, the largest single family developer in British Columbia. Mr.
Horton is also the director of several other building and development  companies
in British Columbia.

VICTOR BOLTON,  DIRECTOR. Mr. Bolton founded a Mechanical contracting firm after
graduating  from  college  and  evolved  that  firm  into  all  aspects  of  the
construction  industry  including  building and raw land  developing  as well as
extensive property  management.  Retiring from this business in 2000, Mr. Bolton
now focuses time and energy towards the food manufacturing field.


Significant Employees

The following are employees who are not executive officers, but who are expected
to make significant contributions to our business:

BRUCE  EVANS,  FARM  MANAGER.  Mr.  Bruce Evans has been  involved in  shellfish
production since 1985. He successfully established an oyster business, employing
methods of long-line  and beach  culture  production.  That business is still in
operation today,  producing 7,000 gals of shucked oysters annually and employing
3 full time people and 4 part time people.  He moved to Island Scallops in 1989.
Mr. Evans was responsible for securing the leases from the Provincial government
for this scallop grow-out  project.  He built the established  long-line systems
that currently  produce  scallops for Island  Scallops.  Mr. Evans worked with a


                                       46
<PAGE>

Japanese  scallop  farmer  for two years in B.C.  and spent a month  working  on
highly acclaimed scallop farms in Japan. Mr. Evans has BS in Marine Biology from
the University of Victoria.

DR. KRISTINA M. MILLER,  CHIEF SCIENTIFIC ADVISOR.  Dr. Miller is currently Head
of the Molecular  Genetics  Section in the Pacific  Region for the Department of
Fisheries  and Oceans,  Canada (DFO).  She has been a research  scientist at DFO
since obtaining her PhD in Biological Sciences from Stanford University in 1992.
The Molecular  Genetics  section she oversees  contains a staff of 26, including
scientists,  biologists,  computer analysts and research technicians. Dr. Miller
conducts  research  on  the  genetic  composition,   adaptation,   immunity  and
physiology  of wild and  domesticated  fish and  shellfish  species  using  both
molecular and genomic  approaches.  She has been a leader in the  development of
molecular  technologies  to aid in the  conservation  and  management of aquatic
resources.  In  the  past  10  years,  she  has  published  over  40  scientific
peer-reviewed journal manuscripts,  and her group has been the focus of numerous
magazine and newspaper articles. Dr. Miller brings a strong scientific component
to the  management of Edgewater  Foods,  and she will serve as Chief  Scientific
Advisor.  In  addition to her PhD,  Dr.  Miller  received a BSc in Zoology  from
University of California, Davis in 1983, and a MSc in Biology from University of
British Columbia in 1986. Dr. Miller is Robert Saunders,  our Chairman,  CEO and
President's wife.

BOARD COMMITTEES

We currently have six committees appointed by our Board of Directors:

     o    Audit  Committee,  which is  comprised of Douglas  MacLellan  (Chair),
          Robert  Rooks and Ian  Fraser.  The Board has  determined  that all of
          these  members  are  independent,  as that term is  defined in Section
          121(A) of the American Stock Exchange's Listing Standards.

     o    Finance  Committee,  which is  comprised  of Mark  Elenowitz  (Chair),
          Douglas MacLellan and Robert Saunders.

     o    Compensation Committee, which is comprised of Ian Fraser (Chair), Mark
          Elenowitz and Doug MacLellan.

     o    Disclosure Committee, which is comprised of Douglas MacLellan (Chair),
          Robert Saunders and Michael Boswell.

     o    Nominating  Committee,  which is comprised of Robert Saunders (Chair),
          Douglas  MacLellan and Robert Rooks. The Board has determined that Mr.
          Rooks and Mr.  MacLellan are  independent,  as that term is defined in
          Section 121(A) of the American Stock Exchange's Listing Standards.

     o    Sarbanes-Oxley  Steering  Committee,  which is  comprised  of  Douglas
          MacLellan,  Robert Saunders,  Michael Boswell and Louis Taubman (Louis
          Taubman is our outside corporate and securities counsel).

AUDIT COMMITTEE AND FINANCIAL EXPERT

We have an Audit Committee as specified in Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended,  composed of Douglas MacLellan (Chair), Robert
Rooks and Ian Fraser.  The Audit Committee  focuses its efforts on assisting our
Board of Directors  to fulfill its  oversight  responsibilities  with respect to
our:



                                       47
<PAGE>

     o    Quarterly and annual consolidated  financial  statements and financial
          information filed with the Securities and Exchange Commission;
     o    System of internal controls;
     o    Financial accounting principles and policies;
     o    Internal and external audit processes; and
     o    Regulatory compliance programs.

The committee meets periodically with management to consider the adequacy of our
internal  controls and financial  reporting  process.  It also  discusses  these
matters with our independent  auditors and with appropriate  financial personnel
that we employ.  The committee  reviews our financial  statements  and discusses
them  with  management  and our  independent  auditors  before  those  financial
statements are filed with the Securities and Exchange Commission.

The  committee  has the sole  authority  to retain and dismiss  our  independent
auditors and  periodically  reviews  their  performance  and  independence  from
management.  The  independent  auditors  have  unrestricted  access  and  report
directly to the committee.

AUDIT COMMITTEE FINANCIAL EXPERT

Douglas  MacLellan  is our Audit  Committee  Financial  Expert,  as that term is
defined  in Item 407 of  Regulation  S-B and the Board has  determined  that Mr.
MacLellan is independent, as that term is defined in Section 121 of the American
Stock  Exchange's  Listing  Standards  and Section  10A(m)(3) of the  Securities
Exchange  Act of 1934.  Mr.  MacLellan's  qualifications  as an audit  committee
financial expert are described in his biography above.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires our  officers,  directors and persons
who own more than 10% of any class of our  securities  registered  under Section
12(g) of the Exchange Act to file reports of ownership  and changes in ownership
with the SEC. Officers, directors and greater than 10% stockholders are required
by SEC  regulation  to furnish us with  copies of all  Section  16(a) forms they
file.

Since we filed a Form 8-A to register our common stock pursuant to Section 12(g)
of the Act, on August 30, 2006, based upon our review of copies of such reports,
our  officers,  directors  and 10%  stockholders  filed the reports  required by
Section 16(a).

CODE OF ETHICS

On August  3,  2005,  we  adopted a code of  ethics  that  applies  to our Chief
Executive Officer and Principal Financial and Accounting Officer. You may obtain
a copy of any of our  codes  of  ethics  at no  cost,  by  written  request  to:
Edgewater Foods International,  Inc., 5552 West Island Highway,  Qualicum Beach,
British Columbia, Canada V9K 2C8; or, by oral request at: (250) 757-9811.




                                       48
<PAGE>

<TABLE>


ITEM 10. EXECUTIVE COMPENSATION

                           Summary Compensation Table

<S>                                                                             <C>                   <C>
----------------------- ------------------ ------------------ ------------------- ------------------- ----------------
  Name and Principal          Year              Salary              Bonus            Stock Awards      Option Awards
       Position                                   ($)                ($)                 ($)                ($)
         (a)                   (b)                (c)                (d)                 (e)                (f)
----------------------- ------------------ ------------------ ------------------- ------------------- ----------------
Robert Saunders               2007            60,000 (1)              0                   0             20,651 (3)
Chief Executive
Officer
----------------------- ------------------ ------------------ ------------------- ------------------- ----------------
Robert Saunders               2006            60,000 (1)         150,000 (1)              0                  0
Chief Executive
Officer
----------------------- ------------------ ------------------ ------------------- ------------------- ----------------
Michael Boswell               2007               0 (2)                0                   0             26,847 (3)
Acting Chief
Accounting Officer
----------------------- ------------------ ------------------ ------------------- ------------------- ----------------
Michael Boswell               2006               0 (2)                0                   0                  0
Acting Chief
Accounting Officer
----------------------- ------------------ ------------------ ------------------- ------------------- ----------------



--------------------- ------------------ -------------------- --------------------- -------------------- -------------
                             Year             Non-Equity          Non-Qualified
                                                                    Deferred
                                           Incentive Plan         Compensation
  Name and Principal                        Compensation            Earnings             All other          Total
      Position                                   ($)                  ($)              Compensation          ($)
        (a)                  (b)                 (g)                  (h)                   (i)              (j)
--------------------- ------------------ -------------------- --------------------- -------------------- -------------
Robert Saunders             2007                  0                    0                 1,000,000        1,080,651
Chief Executive
Officer
--------------------- ------------------ -------------------- --------------------- -------------------- -------------
Robert Saunders             2006                  0                    0                 1,000,000        1,210,000
Chief Executive
Officer
--------------------- ------------------ -------------------- --------------------- -------------------- -------------
Michael Boswell             2007                  0                    0                     0              26,847
Acting Chief
Accounting Officer
--------------------- ------------------ -------------------- --------------------- -------------------- -------------
Michael Boswell             2006                  0                    0                     0                0
Acting Chief
Accounting Officer
--------------------- ------------------ -------------------- --------------------- -------------------- -------------

</TABLE>

                                       49
<PAGE>


     (1)  In June 2005,  we entered  into an  employment  agreement  with Robert
          Saunders, our Chairman, CEO and President.  Mr. Saunders will serve at
          the  pleasure of the Board of  Directors.  Pursuant to his  employment
          agreement,  Mr. Saunders' compensation will be $60,000 (USD) per annum
          for his services as our  President.  Following the receipt of at least
          $5,000,000  (USD) min outside  funding,  Mr.  Saunders will receive an
          additional  $10,000  per  month  for his  services  as  Chairman  and,
          thereafter,  $20,000 per month provided that we achieve gross revenues
          of at least  $20,000,000  (USD) for our most  recent  fiscal  year and
          continuing  as  long  as  we  maintain  gross  revenues  of  at  least
          $20,000,000  (USD)  for each  successive  fiscal  year.  If we fail to
          achieve  gross  revenue of  $20,000,000  (USD) in a successive  fiscal
          year,  Mr.  Saunders  compensation  as  Chairman  shall be  reduced to
          $10,000 (USD) per month. Additionally, we agreed to grant Mr. Saunders
          a signing  bonus of  $150,000  (USD) to be paid upon the closing of at
          least  $3,500,000 in new third party  financing.  In August 2006,  our
          Board approved the following revisions to Mr. Saunders'  compensation:
          reduce Mr.  Saunders'  compensation  from  $10,000 to $5,000 per month
          until our cash flow position improves,  at which time the Compensation
          Committee will recommend that Mr. Saunders' compensation increase back
          to $10,000 per month.  As of August 31, 2007, we had paid Mr. Saunders
          $75,000  of the  $150,000  bonus  that was due  under the terms of the
          agreement.   Additionally,   we  are  currently   discussing  possible
          restructuring/payment  terms of the  accrued  salary of $130,000 as of
          August 31,  2007,  until such time that we become  significantly  cash
          flow positive for its operations.

     (2)  Mr.  Boswell served as our President from March to June 2005, at which
          time Mr. Saunders  replaced Mr. Boswell as President.  Mr. Boswell has
          served as our Acting Chief  Accounting  Officer since August 2005. Mr.
          Boswell  indirectly  owns a  minority  interest  in  TriPoint  Capital
          Advisors,  LLC,  a  significant  shareholder  and party  with which we
          maintain a consulting  agreement.  In August 2006,  the Board approved
          the Compensation  Committee's  recommendation  to pay TriPoint $15,000
          per month,  which  includes  fees for Mr.  Boswell's  services  as our
          Acting Chief Accounting during 2005, however TriPoint agreed to reduce
          such fee to $7,000 per month until our cash flow position improves, at
          which time the  Committee  will  reconvene  and  recommend a return to
          $15,000 per month. In addition,  TriPoint has agreed not to accept any
          additional fees, other than expenses, until we are sufficiently funded
          to carry  out our  business  and  operations.  According  to the above
          reasons, Mr. Boswell did not receive any compensation in 2006.and only
          received the options listed in the table above in 2007.


     (3)  On  August  17,  2007,  Mr.  Saunders  and Mr.  Boswell  were  granted
          five-year  nonqualified  stock  options,  pursuant  to our 2005 Equity
          Plan,  that vest on a 1/12  monthly  basis over a twelve  month period
          beginning  on the grant  date.  The  exercise  price of the options is
          $1.21,  which represents 110% of the closing price of our common stock
          on August 17, 2007. Based on the  Black-Scholes  option pricing model,
          the total fair value of these  options were  determined to be $247,815
          and $322,159 for Mr.  Saunders and Mr.  Boswell,  respectively.  Since
          these options vest  monthly,  the company will incur a monthly cost of
          $20,651  and $26,847  respectively.  As of August 31,  2007,  only one
          month of these stock options costs had been realized.



                                       50
<PAGE>

<TABLE>

<CAPTION>

                  Outstanding Equity Awards at Fiscal Year-End
<S>                                                                             <C>                     <C>
--------------------- ----------------- --------------------- -------------------- -------------------- --------------
                                                                   Equity
                                                                Incentive Plan
                                                                   Awards:
                         Number of           Number of            Number of
                         Securities          Securities           Securities
                         Underlying          Underlying           Underlying
                        Unexercised         Unexercised           Unexercised
                          Options             Options              Unearned             Option              Option
                            (#)                 (#)                Options           Exercise Price       Expiration
        Name            Exercisable        Unexercisable            (#)                  ($)                 Date
        (a)                (b)                  (c)                 (d)                  (e)                  (f)
--------------------- ----------------- --------------------- -------------------- -------------------- --------------
Robert Saunders         300,000 (1)              0                     0                  1.21            8-14-2007
--------------------- ----------------- --------------------- -------------------- -------------------- --------------
Michael Boswell         390,000 (1)              0                     0                  1.21            8-14-2007
--------------------- ----------------- --------------------- -------------------- -------------------- --------------

                                                               Equity Incentive     Equity Incentive
                                                              Plan Awards: Number      Plan Awards:
                        Number of        Market Value of       of Unearned Shares,    Market or Payout
                       Shares or Units   Shares of Units of      Units or Other      Value of Unearned
                        of Stock That      Stock That Have      Rights That Have     Shares, Units or
                       Have Not Vested       Not Vested            Not Vested        Other Rights That
                             (#)                 ($)                  (#)             Have Not Vested
        Name
        (a)                  (g)                 (h)                  (i)                   (j)
---------------------- ----------------- -------------------- --------------------- --------------------
Robert Saunders            275,000             227,164                 0                     0
---------------------- ----------------- -------------------- --------------------- --------------------
Michael Boswell            357,500             295,312                 0                     0
---------------------- ----------------- -------------------- --------------------- --------------------


     (1)  Pursuant to our 2005  Equity  Incentive  Plan,  Mr.  Saunders  and Mr.
          Boswell were granted  five-year  nonqualified  stock options on August
          17, 2007 that vest on a 1/12 monthly  basis over a twelve month period
          beginning  on the grant  date.  The  exercise  price of the options is
          $1.21,  which represents 110% of the closing price of our common stock
          on August 17, 2007.  As Of August 31, 2007 only 1/12 of these  options
          have vested.


Retirement/Resignation Plans

We do not have any plans or  arrangements  in place regarding the payment to any
of our executive officers following such persons retirement or resignation.


                                       51
<PAGE>


                              DIRECTOR COMPENSATION

-------------------------- ----------------------- ---------------------- ----------------------- --------------------
          Name              Fees Earned or Paid        Stock Awards           Option Awards           Non-Equity
                                  in Cash                   ($)                    ($)              incentive Plan
                                    ($)
                                                                                                          Compensation
                                                                                                          ($)
           (a)                      (b)                     (c)                    (d)                    (e)
-------------------------- ----------------------- ---------------------- ----------------------- --------------------
Douglas MacLellan                  36,000                    0                13,768 (1) (2)               0
-------------------------- ----------------------- ---------------------- ----------------------- --------------------
Mark Elenowitz                       0                       0               35,795 (1) (3) (4)            0
-------------------------- ----------------------- ---------------------- ----------------------- --------------------
Darryl Horton                      1,000                     0                  688 (1) (5)                0
-------------------------- ----------------------- ---------------------- ----------------------- --------------------
Ian Fraser                         1,000                     0                5,163 (1) (6)                0
-------------------------- ----------------------- ---------------------- ----------------------- --------------------
Victor Bolton                      1,000                     0                  688 (1) (7)                0
-------------------------- ----------------------- ---------------------- ----------------------- --------------------
Robert Rooks                       1,000                     0                3,442 (1) (8)                0
-------------------------- ----------------------- ---------------------- ----------------------- --------------------

----------------------------------------------------------------------------------------------------------------------
             Name                 Change in Pension Value      All other Compensation                Total
                                 and Nonqualified Deferred               ($)                          ($)
                                   Compensation Earnings
             (a)                            (f)                          (g)                          (h)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas MacLellan                            0                            0                         49,768
------------------------------- ---------------------------- ---------------------------- ----------------------------
Mark Elenowitz                               0                            0                         35,795
------------------------------- ---------------------------- ---------------------------- ----------------------------
Darryl Horton                                0                            0                          1,688
------------------------------- ---------------------------- ---------------------------- ----------------------------
Ian Fraser                                   0                            0                          6,163
------------------------------- ---------------------------- ---------------------------- ----------------------------
Victor Bolton                                0                            0                          1,688
------------------------------- ---------------------------- ---------------------------- ----------------------------
Robert Rooks                                 0                            0                          4,442
------------------------------- ---------------------------- ---------------------------- ----------------------------

</TABLE>

     (1)  At the end of the fiscal year, 2,962,000 options are outstanding.

     (2)  These include the five-year  incentive  stock options  granted to such
          individual on August 17, 2007 pursuant to our 2005 Equity Plan.  These
          options  vest on a 1/12  monthly  basis  over a  twelve  month  period
          beginning  on the  grant  date and are  exercisable  at  $1.21,  which
          represents 110% of the closing price of our common stock on August 17,
          2007. Based on the Black-Scholes  option pricing model, the total fair
          value of these 200,000 options were  determined to be $165,210.  Since
          these options vest  monthly,  we will incur a monthly cost of $13,768.
          As of August 31, 2007, only one month of these stock options costs had
          been realized.


                                       52
<PAGE>


     (3)  These include the five-year  incentive  stock options  granted to such
          individual on August 17, 2007 pursuant to our 2005 Equity Plan.  These
          options  vest on a 1/12  monthly  basis  over a  twelve  month  period
          beginning  on the  grant  date and are  exercisable  at  $1.21,  which
          represents 110% of the closing price of our common stock on August 17,
          2007. Based on the Black-Scholes  option pricing model, the total fair
          value of these 520,000 options were  determined to be $429,546.  Since
          these options vest  monthly,  we will incur a monthly cost of $35,795.
          As of August 31, 2007, only one month of these stock options costs had
          been realized.

     (4)  Mr. Elenowitz  indirectly owns a minority interest in TriPoint Capital
          Advisors,  LLC,  a  significant  shareholder  and party  with which we
          maintain a consulting  agreement.  In August 2006,  the Board approved
          the Compensation  Committee's  recommendation  to pay TriPoint $15,000
          per month,  which  includes  fees for Mr.  Elenowitz's  services  as a
          Director;  however,  TriPoint  agreed to reduce such fee to $7,000 per
          month  until  our cash  flow  position  improves,  at  which  time the
          Committee  will reconvene and recommend a return to $15,000 per month.
          In addition,  TriPoint has agreed not to accept any  additional  fees,
          other than expenses, until we are sufficiently funded to carry out our
          business and operations.

     (5)  These include the five-year  incentive  stock options  granted to such
          individual on August 17, 2007 pursuant to our 2005 Equity Plan.  These
          options  vest on a 1/12  monthly  basis  over a  twelve  month  period
          beginning  on the  grant  date and are  exercisable  at  $1.21,  which
          represents 110% of the closing price of our common stock on August 17,
          2007. Based on the Black-Scholes  option pricing model, the total fair
          value of these 10,000  options  were  determined  to be $8,260.  Since
          these options vest  monthly,  we will incur a monthly cost of $688. As
          of August 31, 2007,  only one month of these stock  options  costs had
          been realized.

     (6)  These include the five-year  incentive  stock options  granted to such
          individual on August 17, 2007 pursuant to our 2005 Equity Plan.  These
          options  vest on a 1/12  monthly  basis  over a  twelve  month  period
          beginning  on the  grant  date and are  exercisable  at  $1.21,  which
          represents 110% of the closing price of our common stock on August 17,
          2007. Based on the Black-Scholes  option pricing model, the total fair
          value of these 75,000  options were  determined  to be $61,954.  Since
          these options vest monthly, we will incur a monthly cost of $5,163. As
          of August 31, 2007,  only one month of these stock  options  costs had
          been realized.

     (7)  These include the five-year  incentive  stock options  granted to such
          individual on August 17, 2007 pursuant to our 2005 Equity Plan.  These
          options  vest on a 1/12  monthly  basis  over a  twelve  month  period
          beginning  on the  grant  date and are  exercisable  at  $1.21,  which
          represents 110% of the closing price of our common stock on August 17,
          2007. Based on the Black-Scholes  option pricing model, the total fair
          value of these 10,000  options  were  determined  to be $8,260.  Since
          these options vest  monthly,  we will incur a monthly cost of $688. As
          of August 31, 2007,  only one month of these stock  options  costs had
          been realized.

     (8)  These include the five-year  incentive  stock options  granted to such
          individual on August 17, 2007 pursuant to our 2005 Equity Plan.  These
          options  vest on a 1/12  monthly  basis  over a  twelve  month  period
          beginning  on the  grant  date and are  exercisable  at  $1.21,  which
          represents 110% of the closing price of our common stock on August 17,
          2007. Based on the Black-Scholes  option pricing model, the total fair
          value of these 50,000  options were  determined  to be $41,302.  Since
          these options vest monthly, we will incur a monthly cost of $3,442. As
          of August 31, 2007,  only one month of these stock  options  costs had
          been realized.

                                       53
<PAGE>


Our  directors  who are  employees do not receive any  compensation  from us for
services rendered as directors.  The Board has created three classes of fees for
outside  directors:  (1) outside directors who are  "independent," as defined in
the Exchange Act will be paid $500 per meeting,  whether telephonic or in person
for director  fee - there shall not be any fees for written  consents in lieu of
board meetings; (2) outside directors who are not "independent" will not receive
any  fees  at  this  time,  but  once  our  cash  flow  position  improves,  the
Compensation  Committee  will reconvene and make  recommendations;  (3) the Vice
Chairman will receive $3,000 per month,  which includes $1,500 per month for his
role as  Chairman  of our  Audit  Committee.  Additionally,  although  we do not
currently have an  arrangement or agreement to provide stock based  compensation
to our outside  directors,  we may, from time to time,  grant outside  directors
incentive stock options pursuant to our 2005 Equity Incentive Plan.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

Securities  authorized for issuance under equity  compensation plans. Please see
Part II, Item 5:  "Market for Common  Equity and  Related  Stockholder  Matters"
above.

Security Ownership of Certain Beneficial Owners and Management

As used in this  section,  the  term  beneficial  ownership  with  respect  to a
security is defined by Rule 13d-3 under the Securities  Exchange Act of 1934, as
amended,  as consisting of sole or shared voting power  (including  the power to
vote or direct the vote) and/or sole or shared  investment  power (including the
power to dispose of or direct the  disposition  of) with respect to the security
through any contract,  arrangement,  understanding,  relationship  or otherwise,
subject to community property laws where applicable.

 As of November 23, 2007, we had a total of  23,737,700  shares of common stock,
7,773,998  shares of Series A Preferred  Stock, 207 shares of Series B Preferred
Stock and 747,870 shares of our Series C Preferred Stock issued and outstanding,
which are our only  issued  and  outstanding  equity  securities.  However,  our
preferred stock does not have any voting rights except with respect to specified
transactions that may affect the rights, preferences, privileges or voting power
of such class and except as otherwise  required by Nevada law. As of the date of
this Report, each share of our Series A Preferred Stock and each share of Series
C Preferred Stock is convertible  into one share of common stock;  each share of
our  Series B  Preferred  Stock is  convertible  into a number of fully paid and
nonassessable  shares  of  our  common  stock  equal  to  the  quotient  of  the
liquidation  preference  amount per share  ($10,000)  divided by the  conversion
price, which initially is $1.15 per share,  subject to certain  adjustments,  or
approximately  8,696  shares  of common  for each  share of  converted  Series B
Preferred Stock.

The  following  table sets forth,  as of November  23,  2006:  (a) the names and
addresses of each beneficial  owner of more than five percent (5%) of our common
stock and Preferred  Stock (taken together as one class) known to us, the number
of shares of common stock and Preferred  Stock  beneficially  owned by each such
person,  and the percent of our common stock and Preferred  Stock so owned;  and
(b) the names and addresses of each director and executive  officer,  the number
of shares our common  stock and  Preferred  Stock  beneficially  owned,  and the


                                       54
<PAGE>

percentage  of our  common  stock and  Preferred  Stock so  owned,  by each such
person,  and by all of our  directors and  executive  officers as a group.  Each
person has sole voting and  investment  power with  respect to the shares of our
common stock and  Preferred  Stock,  except as otherwise  indicated.  Beneficial
ownership  consists  of a direct  interest  in the  shares of  common  stock and
Preferred Stock, except as otherwise indicated.  Individual beneficial ownership
also  includes  shares of common  stock  that a person  has the right to acquire
within 60 days from November 23, 2007.

                                          Amount and Nature of    Percentage
           Name and Address               Beneficial Ownership    Of Voting of
                                                                  Securities (1)

Robert Saunders                                10,025,000 (2)            29.44%
Chairman, President and CEO
5552 West Island Highway
Qualicum Beach, British Columbia
Canada V9K 2C8

Douglas C. MacLellan                            1,123,333 (3)             3.30%
Vice Chairman
8324 Delgany Avenue
Playa del Ray, CA 90293

Mark Elenowitz                              1,454,667 (4) (5)             4.27%
Director
400 Professional Drive
Suite 310
Gaithersburg, MD 20879

Dr. Robert Rooks                                  320,833 (6)             0.94%
Director
912 Pine Avenue
Huntington Beach, CA 90293

Ian Fraser                                        831,250 (7) (8)         2.44%
Director
3056 West 2nd Avenue
Vancouver, British Columbia
Canada V6T 1E9


                                       55
<PAGE>


                                          Amount and Nature of    Percentage
           Name and Address               Beneficial Ownership    Of Voting of
                                                                  Securities (1)

Michael Boswell                             1,100,500 (9) (10)            3.23%
Director and
Acting Chief Accounting Officer
400 Professional Drive
Suite 310
Gaithersburg, MD 20879

Victor Bolton                                   4,167 (11)                0.01%
345-916 W. Broadway
Vancouver, BC V5Z 1K7

Darryl Horton                                   4,167 (12)                0.01%
33568 Eagle Mountain Drive
Abbortsford, BC V3G 2X7

Vision Opportunity Master Fund, Ltd.        1,699,577 (13)                4.99%
20 West 55th St., 5th Floor
New York, NY 10019


All directors and officers as a group (8   14,863,917                    43.64%
   persons)
----------------

     (1)  All  Percentages  have been rounded up to the nearest one hundredth of
          one  percent  and  such   percentage  is  based  upon  the  amount  of
          outstanding  our common stock and preferred  stock, on an as converted
          basis. The percentage  assumes in the case of each shareholder  listed
          in  the  above  list  that  all  warrants  or  options  held  by  such
          shareholder  that are  exercisable  currently  or  within 60 days were
          fully  exercised  by such  shareholder,  without  the  exercise of any
          warrants or options held by any other shareholders.

     (2)  In addition to his stock  ownership,  Mr. Saunders was granted 300,000
          five-year nonqualified stock options on August 17, 2007 that vest on a
          1/12 monthly  basis over a twelve month period  beginning on the grant
          date.  The exercise  price of the options is $1.21,  which  represents
          110% of the closing  price of our common stock on August 17, 2007.  As
          of November 23, 2007,  only 3/12 of these options have vested,  but an
          additional 2/12 will vest within 60 days from such date.

     (3)  In addition to his stock ownership,  Mr. MacLellan was granted 200,000
          five-year nonqualified stock options on August 17, 2007 that vest on a
          1/12 monthly  basis over a twelve month period  beginning on the grant
          date.  The exercise  price of the options is $1.21,  which  represents
          110% of the closing  price of our common stock on August 17, 2007.  As
          of November 23, 2007,  only 3/12 of these options have vested,  but an
          additional 2/12 will vest within 60 days from such date.

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<PAGE>


     (4)  Mr.  Elenowitz is a 100% percent  shareholder of MHE, Inc., which owns
          18,000  shares of our voting stock.  Additionally,  MHE, Inc. is a 40%
          member of TriPoint Capital Advisors,  LLC, which owns 3,000,000 shares
          of our voting stock.  Mr.  Elenowitz  owns 20,000 shares of our voting
          stock   directly.   Therefore,   Mr.   Elenowitz   beneficially   owns
          1,238,000shares of our voting stock.

     (5)  In addition to his stock ownership,  Mr. Elenowitz was granted 520,000
          five-year nonqualified stock options on August 17, 2007 that vest on a
          1/12 monthly  basis over a twelve month period  beginning on the grant
          date.  The exercise  price of the options is $1.21,  which  represents
          110% of the closing  price of our common stock on August 17, 2007.  As
          of November 23, 2007,  only 3/12 of these options have vested,  but an
          additional 2/12 will vest within 60 days from such date.

     (6)  In  addition to his stock  ownership,  Dr.  Rooks was  granted  50,000
          five-year nonqualified stock options on August 17, 2007 that vest on a
          1/12 monthly  basis over a twelve month period  beginning on the grant
          date.  The exercise  price of the options is $1.21,  which  represents
          110% of the closing  price of our common stock on August 17, 2007.  As
          of November 23, 2007,  only 3/12 of these options have vested,  but an
          additional 2/12 will vest within 60 days from such date.

     (7)  Mr. Fraser is a 100% shareholder of One Way Grill Limited,  which owns
          800,000 shares of our voting stock. Therefore, Mr. Fraser beneficially
          owns 800,000 shares of our voting stock.

     (8)  In  addition to his stock  ownership,  Mr.  Fraser was granted  75,000
          five-year nonqualified stock options on August 17, 2007 that vest on a
          1/12 monthly  basis over a twelve month period  beginning on the grant
          date.  The exercise  price of the options is $1.21,  which  represents
          110% of the closing  price of our common stock on August 17, 2007.  As
          of November 23, 2007,  only 3/12 of these options have vested,  but an
          additional 2/12 will vest within 60 days from such date.

     (9)  Mr. Boswell and his wife jointly own Invision,  LLC, which owns 38,000
          shares  of our  voting  stock.  Additionally,  Invision,  LLC is a 30%
          member of TriPoint Capital Advisors,  LLC, which owns 3,000,000 shares
          of our voting stock. Therefore,  Mr. Boswell beneficially owns 938,000
          shares of our voting stock.

     (10) In addition to his stock  ownership,  Mr. Boswell was granted  390,000
          five-year nonqualified stock options on August 17, 2007 that vest on a
          1/12 monthly  basis over a twelve month period  beginning on the grant
          date.  The exercise  price of the options is $1.21,  which  represents
          110% of the closing  price of our common stock on August 17, 2007.  As
          of November 23, 2007,  only 3/12 of these options have vested,  but an
          additional 2/12 will vest within 60 days from such date.

     (11) Mr. Bolton was granted 10,000 five-year  nonqualified stock options on
          August 17, 2007 that vest on a 1/12 monthly  basis over a twelve month
          period  beginning on the grant date. The exercise price of the options
          is $1.21,  which  represents  110% of the closing  price of our common
          stock on August 17, 2007. As of November 23, 2007,  only 3/12 of these
          options have vested,  but an additional  2/12 will vest within 60 days
          from such date.



                                       57
<PAGE>


     (12) Mr. Horton was granted 10,000 five-year  nonqualified stock options on
          August 17, 2007 that vest on a 1/12 monthly  basis over a twelve month
          period  beginning on the grant date. The exercise price of the options
          is $1.21,  which  represents  110% of the closing  price of our common
          stock on August 17,  2007.  As of November 23, 2007 only 3/12 of these
          options have vested,  but an additional  2/12 will vest within 60 days
          from such date.

     (13) Vision owns  2,204,296  shares of common  stock,  5,238,333  shares of
          common stock  issuable  upon  conversion of their Series A Convertible
          Preferred  Stock,  1,495,740  shares of  common  stock  issuable  upon
          conversion  of their Series B  Convertible  Preferred  Stock,  747,870
          shares of common  stock  issuable  upon  conversion  of their Series C
          Convertible  Preferred  Stock  and  230,630  shares  of  common  stock
          received as dividends.  However, based upon the terms of the preferred
          stock,  Vision may not convert its preferred  stock if on any date, it
          would be deemed  the  beneficial  owner of more than 4.99% of the then
          outstanding  shares of our common  stock.  In  addition  to the shares
          listed  in  the  table,  Vision  holds  warrants  to  purchase  up  to
          19,787,758  shares of our  common  stock,  but based upon the terms of
          these  warrants,  Vision cannot exercise them if on any date, it would
          be  deemed  the  beneficial  owner  of more  than  4.99%  of the  then
          outstanding shares of our common stock.  However,  Vision can elect to
          waive the cap upon 61 days  notice to us or less if,  and only if less
          than 61 days  remain on the term of the  warrant  and in such case the
          waiver will not be effective until the warrant's expiration date.


CHANGES IN CONTROL

To the best of our  knowledge,  there are no  arrangements  that  could  cause a
change in our control.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Dr.  Kristina  Miller,  our Chief  Scientific  Advisor is Robert  Saunders,  our
Chairman, CEO and President's wife.

We are party to a consulting  agreement with TriPoint Capital  Advisors,  LLC, a
company  in  which  Mark  Elenowitz,  a  director  and  one of  our  significant
shareholders,  indirectly owns a 40% interest. Michael Boswell, our acting Chief
Accounting  Officer and one of our directors,  indirectly owns a 30% interest in
TriPoint.  Louis  Taubman,  our outside  corporate and  securities  counsel also
indirectly owns an interest (30%) in TriPoint.  Our Board recently  approved the
Compensation  Committee's  recommendation  of a flat rate $15,000 per month fee,
which  shall be  reduced  to  $7,500  per month  until  our cash  flow  position
improves,  for the legal  services  Louis  Taubman  provides  us. The Board also
approved the  recommendation  of a $15,000 per month fee, which shall be reduced
to $7,000 per month until our cash flow  position  improves,  for the Acting CFO
type  services and financial  advisory  services  Michael  Boswell and TriPoint,
respectively,  provide us. Additionally,  our corporate offices in Gaithersburg,
Maryland are currently provided by Tripoint Holdings, LLC, the parent company of
Tripoint at no cost to us.

Island  Scallops,  our  wholly  owned  subsidiary,   recently  transferred  100%
ownership of RKS Laboratories,  Inc. to Robert Saunders,  our Chairman,  CEO and


                                       58
<PAGE>


President.  RKS is a Vancouver  research and development that is working towards
developing  superior strains of scallops (developed by Island Scallops and known
as the Pacific  Scallop)  with  beneficial  traits such as higher meat yield and
rapid  growth.  Island  Scallops  agreed to  transfer  its  ownership  of RKS in
consideration  for the grant to Island  Scallops by RKS and Robert Saunders of a
right of first refusal to commercialize any intellectual  property  developed by
RKS. Island Scallops has the right to acquire or use any  intellectual  property
from RKS at RKS' cost,  in  perpetuity  or until such time as RKS shall cease to
exist.  Between June 2006 and August 2007,  Island Scallops agreed to loan RKS a
total of approximately  $82,000 under eight non-interest  bearing notes that are
secured by all of RKS' assets and are due at on August 31, 2008.


ITEM 13. EXHIBITS LIST


Exhibit
 Number          Description


3.1       Articles of Incorporation of the Company, as amended. (Incorporated by
          reference  to Exhibit 3.1 to the  Company's  Quarterly  Report on Form
          10-QSB for the quarter  ending  February 28, 2007,  which was filed on
          April 13, 2007.)
3.2       Amended and restated Bylaws of the Company  (Incorporated by reference
          to Exhibit 3.1 to the  Company's  Quarterly  Report on Form 10-QSB for
          the quarter  ending  February 28,  2007,  which was filed on April 13,
          2007.)
4.1+      Form of certificate representing shares of the Company's common stock.
4.2       Form of Certificate of Designation of Rights and Preferences of Series
          A Convertible  Preferred Stock.  (Incorporated by reference to Exhibit
          10.3 to the  Company's  Current  Report on Form 8-K filed on April 14,
          2006).
4.3+      Form of  certificate  representing  shares of the  Company's  Series A
          Preferred Stock.
4.4+      Form of  certificate  representing  shares of the  Company's  Series B
          Preferred Stock.
4.5+      Form of  certificate  representing  shares of the  Company's  Series C
          Preferred Stock.
4.12      Form of Series C Convertible Preferred Stock Purchase Agreement, dated
          November  5,  2007,  by  and  between  the  Company  and  each  of the
          Purchasers  thereto  (Incorporated by reference to Exhibit 10.1 to the
          Company's Current Report on Form 8-K filed on November 7, 2007).
4.13      Form of Registration  Rights  Agreement by and between the Company and
          each of the Purchasers  thereto  (Incorporated by reference to Exhibit
          10.2 to the Company's  Current Report on Form 8-K filed on November 7,
          2007).
4.14      Form of Certificate of Designation of Rights and Preferences of Series
          C Convertible  Preferred Stock  (Incorporated  by reference to Exhibit
          10.3 to the Company's  Current Report on Form 8-K filed on November 7,
          2007).


                                       59
<PAGE>

4.15      Form of Lock-Up  Agreement  by and between the Company and each of the
          shareholders listed therein (Incorporated by reference to Exhibit 10.4
          to the  Company's  Current  Report  on Form 8-K filed on  November  7,
          2007).
4.16      Form of Warrants  (Incorporated  by reference to Exhibits 10.5 through
          10.11 to the Company's Current Report on Form 8-K filed on November 7,
          2007).
10.1      Form of Series A Convertible Preferred Stock Purchase Agreement, dated
          April 12, 2006, by and between the Company and each of the  Purchasers
          thereto  (Incorporated  by reference to Exhibit 10.1 to the  Company's
          Current Report on Form 8-K filed on April 14, 2006).
10.2      Form of Registration  Rights  Agreement,  dated April 12, 2006, by and
          between the Company and each of the Purchasers thereto.  (Incorporated
          by reference to Exhibit 10.2 to the Company's  Current  Report on Form
          8-K filed on April 14, 2006).
10.4      Form of  Individual  Lock-Up  Agreement  dated  April 12,  2006 by and
          between  the  Company  and each of the  shareholders  listed  therein.
          (Incorporated  by reference to Exhibit 10.4 to the  Company's  Current
          Report on Form 8-K filed on April 14, 2006).
10.5      Form of Lock-Up  Agreement  dated  April 12,  2006 by and  between the
          Company  and  World  Wide  Mortgage   Corporation.   (Incorporated  by
          reference to Exhibit 10.5 to the Company's  Current Report on Form 8-K
          filed on April 14, 2006).
10.6      Form of  Series A  Warrant  dated  April 12,  2006.  (Incorporated  by
          reference to Exhibit 10.6 to the Company's  Current Report on Form 8-K
          filed on April 14, 2006).
10.7      Form of  Series B  Warrant  dated  April 12,  2006.  (Incorporated  by
          reference to Exhibit 10.7 to the Company's  Current Report on Form 8-K
          filed on April 14, 2006).
10.8      Form of  Series C  Warrant  dated  April 12,  2006.  (Incorporated  by
          reference to Exhibit 10.8 to the Company's  Current Report on Form 8-K
          filed on April 14, 2006).
10.9      Form of  Series D  Warrant  dated  April 12,  2006.  (Incorporated  by
          reference to Exhibit 10.9 to the Company's  Current Report on Form 8-K
          filed on April 14, 2006).
10.10     Form of  Series E  Warrant  dated  April 12,  2006.  (Incorporated  by
          reference to Exhibit 10.10 to the Company's Current Report on Form 8-K
          filed on April 14, 2006).
10.11     Form of  Series F  Warrant  dated  April 12,  2006.  (Incorporated  by
          reference to Exhibit 10.11 to the Company's Current Report on Form 8-K
          filed on April 14, 2006).
10.12     Form of  Series G  Warrant  dated  April 12,  2006.  (Incorporated  by
          reference to Exhibit 10.12 to the Company's Current Report on Form 8-K
          filed on April 14, 2006).
10.13     Form of  Series H  Warrant  dated  April 12,  2006.  (Incorporated  by
          reference to Exhibit 10.13 to the Company's Current Report on Form 8-K
          filed on April 14, 2006).
10.14     Form of  Series J  Warrant  dated  April 12,  2006.  (Incorporated  by
          reference to Exhibit 10.14 to the Company's Current Report on Form 8-K
          filed on April 14, 2006).
10.15     Form of Series A Convertible Preferred Stock Purchase Agreement, dated
          May 30,  2006,  by and between the Company and each of the  Purchasers
          thereto  (Incorporated  by reference to Exhibit 10.1 to the  Company's
          Current Report on Form 8-K filed on May 30, 2006).


                                       60
<PAGE>

10.16     Form of  Registration  Rights  Agreement,  dated May 30, 2006,  by and
          between the Company and each of the Purchasers thereto.  (Incorporated
          by reference to Exhibit 10.2 to the Company's  Current  Report on Form
          8-K filed on May 30, 2006).
10.17     Form of  Series  A  Warrant  dated  May  30,  2006.  (Incorporated  by
          reference to Exhibit 10.3 to the Company's  Current Report on Form 8-K
          filed on May 30, 2006).
10.18     Form of  Series  B  Warrant  dated  May  30,  2006.  (Incorporated  by
          reference to Exhibit 10.4 to the Company's  Current Report on Form 8-K
          filed on May 30, 2006).
10.19     Form of  Series  C  Warrant  dated  May  30,  2006.  (Incorporated  by
          reference to Exhibit 10.5 to the Company's  Current Report on Form 8-K
          filed on May 30, 2006).16, 2005).
10.20     Form of  Series  D  Warrant  dated  may  30,  2006.  (Incorporated  by
          reference to Exhibit 10.6 to the Company's  Current Report on Form 8-K
          filed on May 30, 2006).
10.21     Amendment   to   Registration   Rights   Agreement   dated   May   30,
          2006(Incorporated  by  reference  to  Exhibit  10.7  to the  Company's
          Current Report on Form 8-K filed on August 16, 2005).
10.22     Form of Joinder Agreement to the Series A Convertible  Preferred Stock
          Purchase Agreement, dated May 30, 2006, by and between the Company and
          each of the Purchasers  thereto  (Incorporated by reference to Exhibit
          10.1 to the  Company's  Current  Report  on Form 8-K filed on June 30,
          2006).
10.23     Form of Joinder Agreement to the Registration Rights Agreement,  dated
          May 30,  2006,  by and between the Company and each of the  Purchasers
          thereto.  (Incorporated  by reference to Exhibit 10.2 to the Company's
          Current Report on Form 8-K filed on June 30, 2006).
21.1+     List of Subsidiaries.
31.1+     Certification  of Chief Executive  Officer  Pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002.
31.2+     Certification of Acting Chief  Accounting  Officer Pursuant to Section
          302 of the Sarbanes-Oxley Act of 2002.
32.1+     Certification  of Chief Executive  Officer and Acting Chief Accounting
          Officer  Pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to
          Section 906 of the Sarbanes-Oxley Act of 2002.

+ Filed herewith.






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<PAGE>



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

(1) AUDIT FEES
         The aggregate fees billed for professional  services  rendered by LBB &
Associates,  Ltd., LPP (formerly Lopez, Blevins, Bork & Associates, LLP) for the
audit of the registrant's  annual  financial  statements and review of financial
statements  included  in the  registrant's  Form  10-KSB  or  services  that are
normally  provided by the accountant in connection with statutory and regulatory
filings  or  engagements  for  fiscal  years  2007 and 2006  were  approximately
$102,000 and $46,000 respectively.
(2) AUDIT-RELATED FEES
NONE
(3) TAX FEES
NONE
(4) ALL OTHER FEES
NONE
(5) AUDIT COMMITTEE POLICIES AND PROCEDURES

         The  policy  of our Audit  Committee  is to  pre-approve  all audit and
permissible  non-audit  services to be  performed by the  Company's  independent
auditors during the fiscal year.

         No services related to  Audit-Related  Fees, Tax Fees or All Other Fees
described above, were approved by the Audit Committee.









                                       62
<PAGE>




                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.


/s/ Robert Saunders                                   Dated:  November 29, 2007
---------------------------
Robert Saunders
President and Chief Executive Officer

/s/ Michael Boswell                                   Dated: November 29, 2007
---------------------------
Michael Boswell
Director & Acting Chief Accounting Officer

/s/ Douglas C. MacLellan                              Dated: November 29, 2007
---------------------------
Douglas C. MacLellan
Vice-chairman of the Board

/s/ Mark H. Elenowitz                                 Dated: November 29, 2007
---------------------------
Mark H. Elenowitz
Director

/s/ Dr. Robert Rooks                                  Dated: November 29, 2007
--------------------------
Dr. Robert Rooks
Director

/s/ Ian Fraser                                        Dated: November 29, 2007
--------------------------
Ian Fraser
Director

/s/ Victor Bolton                                    Dated: November 29, 2007
--------------------------
Victor Bolton
Director

/s/ Darryl Horton                                    Dated: November 29, 2007
--------------------------
Darryl Horton
Director





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